3 Tax Breaks That May be Better in the Long Run
The tax overhaul that was pushed through Congress last year, the Tax Cuts and Jobs Act (TCJA), has left some agencies and professionals still grappling with its effects. Many of the changes have to do with the little details of taxes and short-term tax benefits, that may not be the best thing to do for greater benefits later. The tax changes and exemption increases are not yet permanent, and until that time they should be deemed temporary. Mitchell Drossman, national director of wealth planning strategies at U.S. Trust explains, “This tax law is a temporary provision because most of the individual tax provisions sunset at the end of 2025.”
Short-term benefits may look desirable, but here are three tax breaks that may be better in the long run:
- Estate Tax
- For the very wealthy, an important question is whether to make substantial gifts to heirs now or to leave it to them later in a will. It has become a big issue because the estate and gift tax exemption is now $11 million per person or $22 million for a couple. If they gift them now, the recipients will have to only pay capital gains tax rather than estate tax, and the gifting party will end up saving on taxes. But debating a large gift solely on the basis of taxes is a difficult decision, and advice may need to be sought.
- Capital Gains Tax
- Indexing an investment’s purchase price to inflation could also reduce the amount of a loss a taxpayer could claim as a deduction in the long run. Not all investments rise. And the ones that lose money can be carried forward on tax returns until future gains soak them up.
- Charitable Giving
- The standard deduction has been increased to $12,000, and there is no itemized deduction for charitable giving. For those that are privy to donating a certain amount that is less than this threshold, they may worry about how to achieve their goal of giving while receiving the benefit of the deduction. One solution is front loading a donor-advised fund, allowing them to give each year while initially getting over the itemized deduction amount.
See Paul Sullivan, 3 Tax Breaks That May be Better in the Long Run, New York Times, August 10, 2018.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.