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Planning for This Year . . . and Next

Tax planning shouldn’t involve just the current year.  It’s wise to determine what steps to take before the end of 2018, with an eye toward additional tax moves early in 2019.  What should you do this year and next?


  • Ask your financial advisor whether it’s time to rebalance your portfolio.  If you have capital losses, you could use them to offset capital gains when you sell and reinvest appreciated securities.

  • Consider making gifts to family members.  This won’t save income taxes for 2018, but it may reduce taxes in future years, as earnings are shifted to recipients in lower tax brackets.  You can give up to $15,000 per person gift-tax free in 2018 ($30,000 for married couples).

  • Taxpayers age 70½ or older have to take minimum distributions from IRAs and other retirement plans.  If you fail to take the full amount, there’s a 50% tax on what should have been withdrawn.  You may prefer to have the custodian of your IRA send funds directly to charity.  You’ll owe no income tax on the amount you’re required to withdraw that’s sent to charity instead.  IRA owners can give up to $100,000 annually, tax free.  Although there’s no charitable deduction, sending part of your required minimum distribution to charity saves income taxes you would otherwise pay.

  • If you’re still working, try to contribute the maximum allowed to IRAs and 401(k)s.  For those age 50 and older, the limit is $6,500 for IRAs and $24,500 for 401(k)s.  You have until April 15 of 2019 to fund your IRA for 2018, but the earlier you make the contribution, the longer the funds can grow tax-deferred.

  • Make your charitable gifts by December 31 to qualify for a 2018 deduction.  Gifts of appreciated stock held more than one year save additional taxes, but don’t wait until the last minute.


  • Ask your financial advisor about switching a traditional IRA to a Roth IRA.  Qualified distributions from your Roth in future years will be tax free, and you won’t be required to take mandatory withdrawals after age 70½.

  • Make more gifts to family members.  Even if you gave $15,000 in 2018, you can make additional gifts early in 2019, and reduce future income taxes.

  • One way to reduce taxes is to convert some fully taxed investments to municipal bonds.  The earlier in the year you switch, the more you’ll save.

  • Review your estate plan.  Recent changes to estate taxes and increases in the values of stock may mean it’s time to make adjustments to your plans.  When making any changes, you might find it satisfying to add, or boost, charitable gifts in your plans.

Caution: Inheritances Ahead

Tens of trillions of dollars are expected to pass to members of younger generations over the next 25 years.  These sudden windfalls may create as many problems as opportunities.  What issues face heirs?

  • Although an inheritance is generally income tax free, there may be income taxes to pay on certain assets such as qualified retirement accounts, U.S. savings bonds and other assets that have never been subject to tax.  Taxes not only reduce the value of the inheritance, but heirs may land in a higher income tax bracket, as well, resulting in additional taxes owed on other income.  All taxes are avoided when savings bonds and retirement accounts are left to charity.  It’s even possible to retain payments for life from these assets, with the remainder eventually passing to charity.

  • Heirs may need to revise existing estate plans.  An inheritance may push the recipient’s gross estate beyond the $11.18 million that is sheltered from estate tax in 2018.  A few states impose taxes at even lower levels.

  • An investment portfolio may be thrown out of balance with the addition of new assets.  Thanks to the step-up in basis at death, heirs can sell securities without having to worry about capital gains taxes on the appreciation.  It’s a good idea for a financial advisor to review the investments after an heir receives an inheritance.  As a result of the increase in net worth, the heir may also receive higher income – and a larger income tax bill – in future years.

Buy? Sell? Ask Questions First

The stock market has been bouncing around in recent months, causing many investors to reexamine their holdings.  It may be time to sell (to take advantage of gains in certain stocks) or to buy (if share prices seem poised to advance).  Consider these factors:

Q. Have I picked stocks wisely?

A. Look at a company’s position in its field and consider long-term potential.

Q. What have market changes done to my overall investment mix?

A. Is it time to reevaluate how much you have invested in stocks?  What are your current investment goals?  Retired investors might consider bonds, CDs, Treasuries and other investments less affected by Wall Street swings.

Q. What is the “cost” of selling or buying now?

A. Taxes are an important consideration in selling shares.  If you sell at a gain, you share some of your good fortune with the IRS.  Losses, on the other hand, are deductible only to the extent of capital gains plus $3,000 of other income.  You can carry over any excess losses, but it may take years to deduct a large loss.  Consider broker’s fees in your decisions, too.

Q. Am I able to weather the storms of a fluctuating market?

A. Determine the level of risk with which you’re comfortable.  Then review your exposure to see if you can safely ride out market upheavals.

Q. Should I consider gifts of securities to charity?

A. You’ll avoid capital gains entirely if you give securities that have gone up in value to charity.  Plus, you’ll be entitled to a deduction for the full fair market value of the securities if you have held the shares more than one year.  You can make the most of stock market losses by selling shares that have gone down in value and then giving the proceeds to charity.  You’ll be entitled to two deductions – one for the capital loss and another for the gift, if you itemize.

Get a Deduction for Doing Nothing

It may sound too good to be true, but there is actually a tax deduction available for “doing nothing.”  It’s called a conservation easement, and depending on whether the gift is during your life or at death, there can be either an income tax or an estate tax charitable deduction.

With a gift of a conservation easement, the owner of the land typically gives up the development rights to the property.  The gift can be for a scenic easement to preserve the view for the general public or an easement that protects a fragile or endangered habitat.  The amount of the deduction is generally the difference between the original value of the land and the value following the gift of the easement.  A conservation easement must be in perpetuity and must be granted to a qualified charity – often a governmental agency that can enforce an easement and protect the land.

Granting an easement doesn’t necessarily mean that the owner can’t continue using the property.  For example, the easement can provide that the owner will not build more than a specified number of structures on the land or will use the land only for a particular purpose, such as farming.  As easement can also apply to only a portion of an owner’s entire parcel.

Not only is a tax deduction available for giving up the development right to the land, but there may also be a reduction in property taxes as a result.



St. Bonaventure Indian School is a private, Catholic school located at the southeastern edge of the Navajo Nation in Thoreau, NM. The school is one of the ministries of St. Bonaventure Indian Mission which serves the Diné of the area.

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