2018 has provided new financial planning opportunities for many of us. As we highlighted in our recent January blog entry, Financial Planning and Tax Reform, recent tax law changes have required many of us to review the impact on our own situation. If you throw in a decade-long bull market for stocks, many investors need to review tax planning opportunities to potentially reduce their current tax liability while also allowing for a greater level of asset accumulation. This will help create sustainable lifetime income in the future. Here are a few strategies that may be of benefit to you:


Some taxpayers are close to the threshold where itemized deductions exceed the standard deduction.  Depending on the type of deduction, one can apply a timing strategy in order to bundle two years’ into one tax year and take the standard deduction the following year. These types might include estimated state income tax payments, property tax payments, or charitable gifting.

By bundling two years of deductions into one and taking the standard deduction the following year, a taxpayer is able to reduce taxable income over the two-year period, thus reducing the total tax liability. This strategy tends to work best for those charitably inclined who can front-load contributions to a Donor Advised Fund or directly to the charity.

Above is a hypothetical example comparing the two approaches. You can see that by doubling up itemized expenses into one year and taking the standard deduction in the next year can reduce taxes due over the two-year time frame. This is not only due to the increased deduction amount, but also because the taxpayer is able to remain in the 12% tax bracket in 2018 (versus 22% for both years when only taking the standard deduction).



This rule allows for up to $100,000 to be given directly to an eligible charitable organization without impacting your taxes. When executed properly, the distribution is not taxable to the IRA owner.  Although this can also be accomplished by receiving the distribution personally and then gifting the money to said organization, it will have an impact on your tax return.  When completed using the latter method, the withdrawal becomes a taxable IRA distribution, which increases your Adjusted Gross Income (AGI) and is then reduced through your itemized deductions.  Your AGI affects many other areas of your tax return, including your Medicare premium calculations, taxation of Social Security benefits, and phase-outs for itemized medical deductions to name a few.

Above is a simple example where a single taxpayer wants to gift $100,000 from his IRA to his favorite charity. The column on the left assumes he takes a distribution and then turns around and sends the money to the charity. The column on the right assumes he completes a QCD directly from his IRA.  You can see that although the total federal income tax due is the same, his Medicare premiums were almost $3,000 less by doing the QCD because premiums are calculated off modified Adjusted Gross Income, not Taxable Income. In both cases, the charity gets the full $100,000 gift.



Many taxpayers fall into a lower tax bracket at retirement due to lack of earned income.  For those that own retirement accounts (excluding Roth IRAs), the IRS requires taxable distributions beginning at age 70 ½ (RMDs).  These distributions can cause a detrimental tax impact.  This may include being pushed into higher brackets and becoming subjected to additional levels of tax, such as Net Investment Income Tax (NIIT) or increased Medicare premiums due to Income Related Monthly Adjustment Amounts (IRMAA).  To reduce the amount of future RMDs, one strategy is withdraw additional funds from these accounts while the taxpayers are in a lower bracket, and convert them to a Roth IRA. Taxes are paid on the distribution (at the lower bracket percentage) and all future appreciation grows tax-free. RMDs are not required from Roth IRAs during the taxpayer’s lifetime and all distributions are tax-free (after a 5-year holding period from the initial conversion). Here is an example of the lifetime benefit. This generally works best for taxpayers over 70 1/2.

During the years between retirement (62 in this example above) and 70 ½, you can see your tax bracket is very low.  Its important to understand the potential benefit of converting tax-deferred retirement account to Roth accounts. Once you reach age 70, your taxable income increases to the 22% bracket (green area). Should you choose to complete Roth Conversions prior to age 70 ½, maximizing distributions to keep you within the 12% bracket (blue area), you have the ability to reduce the future RMDs, thus reducing your taxable income for the remainder of retirement.  In this example, the taxpayer’s portfolio increases by almost $240,000 over the life of the plan.



Some investors who accumulate large amounts of company stock over time often have a low cost basis. As a result, it may not be in their best interest to realize excess capital gains for tax purposes. However, this also can leave the investor under diversified with too much firm-specific risk. Using advanced planning strategies that hedge concentrated stock positions can:

Manage Downside Concentration Risk

Allow For Participation in Stock Gains

Reduce Portfolio Volatility

Create Potential Income

Avoid Increased Tax Liability


Above is a hypothetical tax aware strategy that illustrates an advanced planning solution for hedging a large concentrated stock position with option contracts. In addition to helping manage firm-specific downside risk,  this can also provide greater flexibility in reducing investor exposure while keeping in mind capital gains in the event a low cost basis exists.


We understand that everyone's circumstances can be vastly different which is also why we recommend that investors take the time to ensure they are on track with their own tax planning needs. These are just a small sample of tax planning opportunities that may exist for you. As the new tax law changes continue to be implemented, it will be critical for investors to optimize their approach. At CAM, our firm will continue to work with our strategic partners to analyze and monitor tax planning strategies in order to best serve our clients.

We appreciate our relationship with you and we are here to help.


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Source:  Delegated Planning, LLC.; TD Ameritrade Institutional; Bloomberg; RightCapital; BNA. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

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