Now that you’ve cleared the cobwebs, put away the ghoulish decorations and done justice to your Halloween candy stash, it’s time to cross off the next to-do item on your list. No, we aren’t talking about a gift-buying spree for the holidays or preparing for year-end festivities. Yet.

Next up: It is time to meet with your tax advisor and investment professionals to kick off year-end tax planning discussions. This financial chore is essential for high-net-worth individuals and families to ensure they don’t miss out on key tax benefits, especially in a year of substantial tax reform with the 2018 Tax Cuts and Jobs Act.

In these discussions, here are a few key areas to address and/or consider:

Harvesting Losses

There will be times when you deliberately want to realize a capital loss to reduce your income tax bill, for instance, when you are incurring large capital gains in the same tax year. So, if you sold an operating business, a piece of real estate or have large capital gains elsewhere in the investment portfolio, capital losses can be used to not only offset these capital gains, but also some ordinary income.

When an investment is sold to generate capital losses, it does not mean that the portfolio should eliminate that particular exposure; you can realize a capital loss for tax purposes without necessarily incurring a long-term investment loss. To maintain market exposure, proceeds can be reinvested in a similar exposure. For example, an actively-managed international-equity fund may be replaced with an international-equity exchange-traded fund. If there is a desire to go back to the original investment, remember to wait at least 31 days to avoid the wash-sale rule. For separately-managed accounts, instructions can be given to investment managers to harvest losses within the portfolio.

Timing New Purchases

If you are planning to invest capital into a mutual fund, be aware of dividend and year-end capital-gain distributions. Most funds will pay distributions during the month of December, so timing new investments into mutual funds late in the year can be tricky. You do not want to inherit a fund’s built-in capital gain without benefitting from the fund’s appreciation throughout the year. Confirm the amount of embedded gains in a fund and gather estimates for potential distributions and the distribution date before investing. It is often best to wait to purchase a fund until after dividend and capital gains are distributed.

Annual Gifting

The 2018 tax-reform bill increased the annual gift tax exclusion limit to $15,000 for single taxpayers and $30,000 for those married and filing jointly, up from $14,000 and $28,000, respectively. You can gift this amount to an unlimited number of individuals during the year free of gift tax. Gifts made to a spouse who is a US citizen are exempt from gift taxes altogether due to the unlimited marital deduction.

Should you want to give more than the annual gift tax exclusion limit, you may use your lifetime gift and estate tax exemption. Under the 2018 tax reform, the estate and lifetime gift tax exemption also increased to $11.2 million for single taxpayers and $22.4 million for married couples. It is often preferable to utilize this exclusion sooner rather than later to move future appreciation out of an estate.

One way you can increase your gifting and avoid the gift tax is by paying tuition or medical expenses directly to the universities and/or hospitals; this would be above the $15,000 annual exclusion. The recipient typically owes no taxes and does not have to report the gift.

Cash or high-basis assets are often preferred for gifts while highly-appreciated assets are better left in your portfolio to transfer as part of your estate when there will be a step-up in cost basis. Take note: depending on where you live, there could be state tax consequences for your gift and estate.

Charitable Contributions

Doing good is its own reward; tax benefits are a bonus. While taxes may not be in the forefront when considering giving, the tax deduction for charitable contributions has typically helped dampen the tax bill if you itemize instead of taking the standard deduction.

Under the new Tax Cuts and Jobs Act, it is predicted that far fewer people will itemize given the increase in the standard deduction and the cap on SALT deductions. To this end, if you are no longer able to itemize, you may need to give differently. Perhaps you could bundle your annual donations, giving a larger amount every few years. Using this method, you may be able to alternate taking the standard deduction and using the itemized deduction. Similarly, a donor-advised fund lets you make a charitable contribution of any amount and receive the full tax benefit, while allowing you to designate the charities you wish to benefit while providing flexibility with regards to the amount and timing of your gifts.

When making charitable contributions, giving highly-appreciated stocks or assets is typically preferred as it allows you to avoid the capital gains tax on those investments. In addition, if you are over age 70-and-a-half, you are exempt from paying income tax annually on up to $100,000 in charitable donations made from a traditional IRA.

Investment Liquidity Terms

If rebalancing your portfolio or implementing a change in your liquidity profile is part of your year-end planning, be aware of timing provisions. Most limited partnerships and/or commingled funds require a notice period before funds can be redeemed. Be sure to refer to your subscription documents to fully understand the liquidity terms and be sure to submit redemption notices within the specified timeframe.


The time you take to meet with your tax, estate, and investment professionals is time well spent. Planning should be an ongoing exercise, but with the end of the year approaching, it is a good idea to review what actions you might be able to take to ensure you are taking full advantage of every opportunity in any given tax year. The 2018 Tax Cuts and Jobs Act remains in effect until December 31, 2025, unless extended by additional tax law updates. As such, it would be wise to take full advantage of the higher exclusions and potentially lower your annual tax liability while you can.

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