Private Wealth Management.

“Two roads diverged in a wood, and I - I took the one less traveled by, and that has made all the difference.” ~Robert Frost

As featured in South Lake Neighbors Magazine (February 2019)
By, Derick Gallagher, J.D., Tax, Business & Private Wealth Manager

2018 was a monumental year for tax reform. Substantial tweaks and modifications were made in an attempt to keep that economic engine purring along. Read on to learn some unconventional tax strategies.

Will you be in a low tax bracket?  If you know your income stream will put you in a low tax bracket take advantage through your Roth IRA.  If you have a Roth IRA that has been opened for five years, and you have reached age 59 ½ (or disabled), you can take tax free withdrawals on the earnings in addition to the principal.  However, if you do not have a Roth and only have a Traditional IRA all is not lost.  If you know you will be in a lower tax bracket, it may make sense to convert your Traditional IRA to a Roth IRA and pay your taxes now.

How can I lower my taxable income?  Have you maxed out your 401K and IRA contributions?  You have until Tax Day to make these contributions to lower your taxable income. 

How can I make the most out of a charitable contribution?  Qualified Charitable Distributions (QCDs) are your answer.  Using a QCD is a tax-savvy strategy that allows you to transfer up to $100,000 per year from your IRA directly to a qualified charity after you have reached your required minimum distribution age (70.5).  This will lower your taxable income, resulting in a lower overall tax liability.

Do you have company stock?  For those of you that own highly appreciated stock in an Employee Stock Ownership Plan (ESOP), there is a little-known tax rule that can save a substantial amount of taxes if you qualify.  This election needs to be selected upon the initial purchase from your ESOP to qualify. The rule, called the Net Unrealized Appreciation (NUA) rule, allows the appreciation of the stock while owned by you in the ESOP to be taxed at capital gains rates rather than ordinary income tax rates once you sell the stock.  Additionally, the NUA is not subject to the 3.8% Medicare surtax.

Do you have bank accounts or hold assets in a foreign country? Make sure you are compliant with the United States Treasury Departments foreign asset reporting requirements or you may find yourself hit with a stiff penalty.

Everyone’s situation is different and it can be very confusing…when can you, why can you, and how can you strategize most effectively.  Ask your expert Registered Investment Advisor (RIA) who can work with your CPA to assist you with your specific financial situation.

Disclosure: This article is intended to provide general financial education and is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties.  Individuals are encouraged to seek advice from their own tax or legal counsel in addition to their wealth manager. 

February 13th, 2019

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