14 | RKL 2018 Year-End Tax Planning Guide RKL 2018 Year-End Tax Planning Guide | 15 WEALTH MANAGEMENT From tax rate reduction to changes to certain deductions, many aspects of tax reform play into wealth management and retirement planning, as seen in the chart below. Your tax or wealth advisor can help you take a comprehensive view of how these reforms will cumulatively impact your personal planning, but this section offers an overview of the impacts and available strategies to help individuals maximize tax benefits. TAX REFORM IMPACT: WEALTH MANAGEMENT WHAT STAYED THE SAME: WHAT CHANGED: • Estate and gift tax retained • Roth IRA conversions remain • Recharacterization of Roth and traditional IRA contributions remain • Charitable contributions still deductible, subject to income limitation (capital gain property donations still capped at 30% of adjusted gross income) • Capital gains and qualified dividends tax rates • Current 401(k) and retirement plan rules retained • Estate and gift tax exemption amount increased • Recharacterization of Roth conversions now disallowed • Income limitation for cash donations to public charities changed from 50% to 60% of adjusted gross income • Increased in standard deduction makes alternate giving methods (like bunching) more beneficial • Marginal tax rates and inflation of brackets Post-tax reform, the tax rates for long-term capital gains and qualified dividends remain 20, 15 and 0 percent depending on an individual’s tax bracket. The below chart aligns the new tax brackets with its corresponding capital gains rate. Short-term gains and nonqualified dividends are still taxed at ordinary income rates While tax reform did not change the rates for capital gains, it did raise the thresholds at which the alternative minimum tax (AMT) kicks in for individuals, as discussed on page 8 of this guide. Starting in 2018, $109,400 of income for married filing jointly (up from $84,500) and $70,300 of income for single filers (up from $54,300) is exempt from AMT. The exemption begins to phase out at $1 million for married filing jointly and $500,000 for single filers. CAPITAL GAINS & QUALIFIED DIVIDENDS INCOME TAX BRACKET CAPITAL GAINS TAX MARRIED FILING JOINTLY SINGLE RATE MARRIED FILING JOINTLY SINGLE RATE (taxable income exceeding...) (is taxed at...) (taxable income exceeding...) (is taxed at...) $0 $0 10% $0 $0 0% $19,050 $9,525 12% -------------------------------------------------- $77,400 $38,700 22% $77,200 $38,600 15% $165,000 $82,500 24% -------------------------------------------------- $315,000 $157,500 32% -------------------------------------------------- $400,000 $200,000 35% $479,000+ $425,800+ 20% $600,000+ $500,000 37% -------------------------------------------------- PLANNING Opportunity Taxpayers may be able to reap greater benefits from capital gains and other income without being subject to AMT. Since a zero percent rate for capital gains is still an option depending on taxable income, individuals should work with their advisors to develop a strategy for maximizing the tax benefits of long-term holdings. Retired individuals may benefit the most from this approach, due to the higher standard deduction and zero percent capital gains rate for certain income thresholds. RKL 2018 Year-End Tax Planning Guide | 15