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December 13, 2017


As of the writing of this memo, Congress is proceeding with reconciliation of the House and Senate tax bills. To put it concisely, we have our feet planted firmly in mid-air! But we're nearing year-end, and we must take a stab at some advice for smart tax planning. Although we are providing some tax planning ideas, you should check with your tax advisor on your specific situation. So, here goes:

Tax Rates

We believe that income tax rates for many of us will be lower next year than this year. If so, you should accelerate deductions and defer income, where possible. Examples of accelerating deductions are pre-paying state and local income taxes, prepaying real estate taxes, prepaying a monthly mortgage interest payment, and prepaying some miscellaneous deductions such as tax preparation fees. Examples of deferring income are taking bonuses after December 31 if you have discretion, billing fee income after December 31 and deferring IRA payments (except for Required Minimum Distributions).

Charitable Gifts

Be mindful on the limits on charitable contributions. Generally, you can't deduct more than 50% of your adjusted gross income, but there are other limitations as well. You can carry forward contributions that aren't currently deductible. Again, check with your tax advisor for advice on your specific situation. Remember that gifts of low basis securities are generally more tax effective than gifts of cash, you not only get the same value as a cash gift, but you "give away" the capital gain as well. You can use the cash that you would have gifted to re-establish the position in the security that you gifted if you want to retain it. As you can imagine, this time of year is very busy for custodians and if you wish to gift stock please realize it's on a best efforts basis by now so if you choose to proceed, sooner is better than later.

Capital Gains

You should round up your recognized gains to see if it is worth checking for losses to offset them. There are changes proposed for gains and losses, too complex to explain here, but we believe you should prepare to offset gains if possible.

Alternative Minimum Tax

We don't know whether the AMT will survive reconciliation, but be aware that any of the ideas above can be affected by the AMT. You MUST determine whether you will incur the AMT this year before taking advantage of most of the ideas set forth here.

Estate and Gift Taxes

Both the House and Senate versions of tax reform will increase the credit available to offset gift and estate taxes. There is no obvious planning here before year end, except that we would recommend if you are on a schedule to make year-end gifts, such as annual exclusion gifts to children and grandchildren, we recommend that you follow through.

As soon as a final bill is available, we will be back with more certainty as to effect. But it will most likely be very late in the year, leaving little time for planning. So, you might want to prepare yourself for potential planning now.