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Important Enactments and Revisions Affecting Estate and Tax Planning 2019

As the yearly deadline of April 15 draws closer, many Americans are reevaluating their taxes in light of the Tax Cuts and Jobs Act ("TCJA"). While there are portions of the TCJA that are important to be aware of for 2019, there were other changes to the Internal Revenue Code in 2018 that should be noted for 2019. In addition, Idaho taxpayers should note minor changes to the State of Idaho tax code that were enacted in the 2019 session of the Idaho Legislature.


Bipartisan Budget Act of 2018.


The Bipartisan Budge Act of 2018 amended Section 401(k) of the Internal Revenue Code (the section of the code which lends a 401(k) plan its name) which affects 401(k) plan hardship withdrawals. For the plan year beginning in 2019 the rules for hardship withdrawals are expanded to allow qualified nonelective contributions, qualified matching contributions, and earnings on elective deferral contributions to be available for a hardship withdrawal. Currently this amendment does not affect 403(b) plans unless further legislation is enacted. If you believe that you may need or qualify for a hardship withdrawal for the 2019 plan year, we recommend that you consult a qualified tax professional and/or financial planner.


Estate Tax Exclusion.


The TCJA increased the threshold for paying federal tax on estates to $11,180,000, effective January 1, 2018. This amount has increased to $11,400,000 for the 2019 tax year. Using the portability election, a married couple may transfer approximately $22.8 million in assets through the combined exemptions. For couples in a same sex marriage there is a new provision in the Internal Revenue Service regulations that allows a spouse to restore their exclusion amount if a gift to a same sex spouse resulted in a reduction of the donor spouse's applicable exclusion amount. If you believe that this regulation applies to you, we recommend that you consult a qualified tax professional.


Charitable Contributions.  Charitable giving can be a useful and altruistic tool for estate and tax planning. A popular amendment to the federal tax code enacted by the TCJA was the increased deduction for charitable contributions, which increased from 50% of the Adjusted Gross Income ("AGI") to 60% of the AGI. However, an often-overlooked detail of the amendment to this deduction under the TCJA affects the deduction for 80% of a contribution to a college or university in exchange for the right to purchase tickets to athletic events. The TCJA abolished this deduction completely. If you previously relied upon this deduction as part of your yearly estate and/or tax planning, you will need to adjust your charitable contributions accordingly. Following the enactment of the TCJA the Internal Revenue Service published final regulations concerning the substantiation of charitable contributions for tax purposes. In some cases the substantiation requirements were heightened. For a gift of property valued at $5,000 or more a "qualified appraisal" and IRS Form 8283 is required to document the gift. For cash charitable contributions the donor must maintain a bank record or written communication from the donee acknowledging the transaction. If you rely on the charitable contribution deduction for your yearly tax planning, we recommend that you consult a qualified tax professional regarding the records you must maintain to substantiate charitable gifts.

Index For Inflation. Prior to the enactment of the TCJA, the estate tax exclusion, along with many other provisions of the Internal Revenue Code, was indexed for inflation with annual adjustments made based on the Consumer Price Index ("CPI").   The CPI is based on consumer goods in the United States and tracks the increase in cost of these goods over time. The TCJA replaced this inflation adjustment mechanism with the Chained Consumer Price Index ("Chained CPI"). The Chained CPI also tracks the prices of consumer goods in the United States, but it operates on the assumption that if a particular good becomes too expensive the consumer will purchase a cheaper alternative. The end result is that the Chained CPI grows at a slightly slower rate over time than the standard CPI. The impact of this change year-to-year is likely to be small. However, the long-term effect will likely be that the yearly increase to the estate tax exclusion amount may eventually lag behind actual inflation. This could have very serious estate planning consequences for individuals who are currently below, but near, the estate tax exclusion amount as the likelihood of exceeding the estate tax exclusion amount over the course of years has increased for these individuals. Please contact our office if you have any concerns regarding the estate tax exclusion amount and planning for the eventuality of exceeding the estate tax exclusion amount.

Business Losses. Idaho House Bill No. 14 was enacted into law, amending Idaho Code § 63-3021. This section of the Idaho code allows a deduction on Idaho income taxes for excess business losses claimed under Internal Revenue Code § 461. After amendment, Section 63-3021 will permit an Idaho taxpayer to add the loss claimed under Internal Revenue Code § 461 towards the calculation of the Idaho Net Operating Loss ("NOL"). This amendment ensures that Idaho taxpayers receive the benefit of the limited loss claimed under Internal Revenue Code § 461 in the event there is no Idaho NOL.

Miscellaneous Amendments. Idaho House Bill No. 19 was enacted into law, amending Idaho Code § 63-3029L, which provides the Idaho child tax credit. After amendment only a resident Idaho taxpayer can claim the child tax credit for the entire year. A part-year resident may claim a pro-rated credit for months in which the taxpayer was domiciled in Idaho. House Bill No. 16 was enacted into law amending the form of Idaho Code § 63-3035 to make this statute's language conform to the language used in the TCJA.


Jeremy C. Younggren is an Associate Attorney with the firm of Sandra L. Clapp & Associates, P.A. and can be reached at or (208) 938-2660.  This article is not intended to replace legal advice applicable to your situation and should be used only for informational purpose.  Consult with your legal or tax advisors before implementing any suggestions contained herein.

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