1. Tax planning tips and updates for 2018
In this presentation we will be looking at the 2018 tax planning considerations for income, investment and estate planning. We will also be looking at some recent rules changes affecting IRAs.
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2. Some things you need to know
Federal income tax laws are complex and subject to change. The information in this memorandum is based on current interpretations of the law and is not guaranteed. Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice. This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation. This presentation is for educational purposes only and is not intended to be a solicitation or sale of a specific product or service. The presentation is designed to provide accurate and authoritative information in regard to the subject matter covered.
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3. Some things you need to know
The general information in this presentation is not intended to be nor should it be treated as tax, legal, accounting or other professional advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties. Investing involves risk, including possible loss of principal. All guarantees are subject to the claims-paying ability of the entity provided any such guarantees. Nationwide Investment Services Corporation, Columbus, Ohio, member FINRA.
Read slide
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4. 2018 Income Tax Provisions $500,000 for single
Ordinary income
Top rate - 37% for taxable incomes over:
$500,000 for single
$600,000 for married filing jointly
$500,000 head of households
$300,000 married filing separately
$12,500 for trusts and estates
Chained CPI-U used for indexing going forward
Rate changes and most individual provisions sunset after 2025 (use of C-CPI does not sunset)
Capital Gains & Qualifying Dividends
Income thresholds same as in 2017
No longer lines up with ordinary income brackets
Overall ordinary income rates have decreased, seven bracket structure has been retained.
Read Slide for top rate income limits.
The individual income tax bracket thresholds and numerous other Code thresholds (INCLUDING IRA LIMITS) would be indexed based on changes to the Consumer Price Index for all Urban Consumers (CPI-U), aka Chained-CPI-U (C-CPI-U) –
The CPI-U is published by the Department of Labor (DOL) and measures prices paid on a broad range of products by typical consumers in urban areas. (C-CPI-U), which is a slightly different measure of inflation than the CPI-U in that it reflects the ability of consumers to substitute comparable lower-priced goods as prices fluctuate. Due to this difference, the C-CPI-U is likely to result in slightly smaller annual indexing increases each year.
Rates for long-term capital gains and qualified dividends will continue to use the prior income thresholds. This means that capital gains and qualified dividend rates will no longer line up with the ordinary income tax brackets. 5

5. Exemption and Deduction Amounts and Limits
Standard deduction amounts for 2018:
Single - $12,000
Married Filing Jointly - $24,000
Head of Household - $18,000
Personal exemption amount eliminated
Personal exemption and itemized deduction phaseout limits eliminated
Alternative minimum tax (AMT) remains for individuals, but the income thresholds have been increased
Most individual provisions sunset after 2025
In the past taxpayers were able to take the standard deduction or itemize deductions and receive a personal exemption for each family member. The Act increases the standard deduction amount, reduces or eliminates numerous itemized deductions (as will be discussed in more detail on later slides) and eliminates the personal exemption. The result of these changes is that millions more Americans are likely to take the standard deduction rather than itemize.
Individuals may want to review the amount their employers are withholding in light of the lower tax rates, the higher child tax credit (discussed below), loss of the personal exemption and the higher standard deduction.
All of these amounts will be adjusted annually for increases in the cost of living.
Taxpayers must compute their income for purposes of both the regular income tax and the AMT, and their tax liability is equal to the greater of their regular income tax liability or AMT liability. In computing the AMT, only alternative minimum taxable income (AMTI) above an AMT exemption amount is taken into account so for taxable years beginning after 2017, the AMT exemption amount for single filers would be increased to $70,300 ($109,400 for joint filers). The AMT exemption would begin to phase out at $156,300 ($208,400 for joint filers). The topline AMT exemption phase-out amount is $1,000,000 for married filing jointly and $500,000 for all others. The exemption and phase-out threshold amounts would be indexed beginning after 2018 based on changes to the C-CPI-U for calendar year 2017.
Rate changes and most individual provisions sunset after 2025 6

6. Changes to deductions and credits
Child tax credit - $2,000 per child ($1,400 refundable)
Temporary reduction in medical expense deduction floor – 7.5% in 2017 & 2018, 10% in 2019 and beyond
Limitation on deduction for state and local taxes - $10,000 maximum
Limit on deduction for qualified residence interest
Elimination of miscellaneous itemized deductions
Elimination of personal casualty loss deduction – retained if a federal disaster
Charitable contribution deduction AGI threshold increased to 60% for cash contributions to public charities
Most individual provisions sunset after 2025
The child tax credit is increased from $1,000 to $2,000. Begins to phase out for taxpayers whose AGI is over $400,000 (joint filers) and $200,000 in all other cases (these thresholds are not indexed for inflation). Provides a new nonrefundable credit of $500 for each dependent who is not a qualifying child. The refundable portion of the credit cannot exceed $1,400 for a qualifying child (adjusted for inflation after 2018).
For tax years 2017 and 2018 medical expenses that exceed 7.5% of AGI will be deductible for all taxpayers. In 2019 and beyond the threshold will revert back to 10%.
The aggregate amount of all state and local property, income and sales taxes that are deductible will be $10,000 ($5,000 if married filing separately) per year. EXCEPT, if any of those taxes are paid in carrying on a trade or business then the cap does not apply. Also, unless paid or accrued in carrying on a trade or business, a taxpayer can no longer deduct foreign real property taxes.
Mortgage Deduction Limited To $750,000 Of Principal & No Home Equity Indebtedness
new cap on mortgage interest deductibility on the first $750,000 of debt principal (so-called “acquisition indebtedness” used to acquire, build, or substantially improve a primary residence).
the limitation only applies to new mortgages taken out after December 15th of 2017;
any existing mortgages retain their deductibility of interest on the first $1,000,000 of debt principal, and a refinance of such mortgages in the future will retain their $1,000,000 debt limit (but only for the remaining debt balance, and not any additional debt).
In addition, any houses that were under a written contract by December 15th to close on a principal residence purchased by January 1st of 2018 (and actually close by April 1st) will also be grandfathered.
After 2017, interest on “home equity indebtedness” will no longer be deductible unless it can be considered “acquisition indebtedness”
the determination of “home equity indebtedness” vs “acquisition indebtedness” is based on how the mortgage proceeds are used.
- “acquisition indebtedness” is a mortgage used to acquire, build, or substantially improve the primary residence;
- “home equity indebtedness” is money used for any other purpose (e.g., for personal spending, refinancing credit cards, paying for college, buying a car, etc.).
No miscellaneous itemized deductions are allowed. (Taxpayers had been able to deduct miscellaneous items that exceed 2% of AGI up to certain threshold amounts.)
Personally casualty loss deductions will only be allowed for a Federally-declared disaster.
The itemized deduction for charitable contributions would be retained, and increases the limitation to 60% of AGI for cash contributions made to public charities in taxable years beginning after 2017.
Rate changes and most individual provisions sunset after 2025 7

7. Federal Estate and Gift Tax Provisions
Estate and gift taxes remain unified
Estate tax exemption amount for $11,180,000
Married couple combined exemption amount - $22,360,000
Portability permanent for married couples
Annual exclusion amount for gifts for $15,000 per donor per donee
Maximum estate and gift tax rate 40%
Step-up in basis at death retained
Sunset after 2025 and reverts back to 2017 levels
The estate and gift taxes remain unified and cumulative.
For 2018 the exclusion amount is $11,18 0,000. The IRS has released Revenue Procedure , which modifies some inflation-adjusted tax provisions to reflect changes implemented by 2017 tax reform
The annual gift tax exclusion is $15,000.
The maximum estate & gift tax rate is 40%, and portability has been made permanent.
The total amount that can be passed by a married couple estate and gift tax free is $22,360,000.
Sunset after 2025 and reverts back to 2017 levels 8

8. Highlights of Other Changes from Tax Bill
Repeal rule permitting recharacterizations of Roth conversions
529 account funding for elementary and secondary education - $10,000 annual limit
Student loan forgiveness not taxable at student’s death or total disability
Extended rollover period for the rollover of plan loan offset
amounts
1031 exchanges now limited to only real property
Alimony payments not deductible
Most individual provisions sunset after 2025
The special rule that allows a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA does not apply to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion. However, recharacterization is still permitted with respect to other contributions. For example, an individual may make a contribution for a year to a Roth IRA and, before the due date for the individual’s income tax return for that year, recharacterize it as a contribution to a traditional IRA.
529 plan distributions can be used for elementary or secondary public, private or religious school expenses, up to $10,000 per year per student. So, even though a student may be the beneficiary of multiple accounts, only $10,000 per year can be distributed tax-free for that student.
Starting in 2018 student loan forgiveness is not taxable at the student’s death or total disability
The deadline to avoid having a plan loan be treated as a taxable distribution as a result of an individuals’ separation from service (or in the event of plan termination) is exteneded by permitting employees to roll over the loan balance to an IRA/plan by the due date for filing their tax return (including extensions).
1031 Exchanges Limited to Real Estate
1031 exchanges (occurring after 12/31 of 2017) will apply only to real estate.
Taxpayers will no longer be able to take a deduction for alimony payments, and alimony recipients will no longer include the payment in income. This applies to alimony payments made pursuant to a divorce or separation instrument executed after 12/31/2018 and to one executed before that date that is modified after that date if it is done so to have this statutory change apply to the modification.
Rate changes and most individual provisions sunset after 2025 9

9. Tax Planning Ideas
4) Make a Qualified Charitable Distributions (QCD) from an IRA – over age 70 ½ only 5) Reduce current income by using capital losses to offset capital gains 6) Reduce current income by using tax lot selling 7) Reduce current and future income by donating appreciated investments to charity
4) A qualified charitable distribution (QCD) is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. Qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. Charitable distributions are reported on Form 1099-R for the calendar year the distribution is made. To report a qualified charitable distribution on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter "QCD" next to this line.
5) To defer recognition of gains and to harvest tax losses throughout the year to shelter gains that are recognized.
6) When selling a portion of one’s holdings, it pays to identify the particular lot that is being sold. The goal is to sell first the assets with the highest basis.
7) By donating appreciated assets to charity, an investor can get a dual tax benefit: a deduction equal to the full value of the asset contributed (subject to the phase out and limitations imposed generally on charitable contribution deductions) without recognition of gain on the asset appreciation. 15

10. Tax Planning Ideas 8) Reduce future income taxation with after-tax
contributions to certain qualified accounts now to
have potentially tax-free distributions in the future
$18,500 (salary deferral)
$6,000 (over 50 catch up amount)
Roth 401k/403b/457b
$5,500 contribution amount
$1,000 catch-up
Income limits by filing status
Both Roth account types offer tax-free
distributions
Roth IRA
A Roth 401(k) and a Roth IRA sound similar -- and they are. Contributions are made after taxes and earnings can be taken out tax-free after five years and attainment of age 59½. Contribution limits: - Roth 401k/403b/457b
- $18,500 (salary deferral)
- $6,000 (over 50 catch up amount)
- Roth IRA
- $5,500 contribution amount
- $1,000 catch-up if over age 50
2018 Roth IRA Contribution Limit income thresholds:
Single and Head of Household: $120,000 - $135,000
Married Filing Jointly: $189,000 to $199,000
Married Filing Separately: $0 to $10,000
A benefit of the Roth IRA is that there are any minimum required distributions while the owner is alive.
The Roth IRA can be passed down to the next generation and provide tax-free earnings for that generation and the next for distributions after five years from the date of the establishment of the Roth IRA (includes the original owner’s time).
A Roth 401(k), on the other hand, will require distributions starting at age 70½. If you need the money, you may not mind taking the distributions. But there is a way around it if you prefer to keep your savings working for you tax-free account holders can roll the account over from a 401(k) directly to a Roth IRA
A 529 plan offers many advantages compared to mutual funds, bank accounts, and most other types of investments that might be used to save for college. Its primary benefit has to do with income taxes on account earnings. A 529 account is a tax-free investment provided it is eventually used to pay for qualified higher education expenses. This means all of your earnings go towards college and not to Uncle Sam. In addition, with 529 plans you usually get some state tax benefits, advantageous treatment when applying for financial aid, and professional management of your investments with stringent oversight by the states. It is also a very flexible tool with low minimum contributions and high maximum contributions that can be redirected to other members of the family if the original beneficiary does not need all the money. And of great importance to many parents and grandparents, it is an investment that always stays under your control and not accessible to the beneficiary unless you say so, no matter what the beneficiary's age. The primary downside to a 529 plan is that you risk income tax and a 10% penalty on the account earnings if you take out 529 money for a purpose other than college. Another consideration is that 529 plans do charge an extra layer of fees for the administration of the plan, but most states have brought their 529 plan fees down to very low levels.
The good news is that your contribution qualifies for the $15,000 annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax. Parents or grandparents gifting to family members may receive an immediate benefit in reducing the donor's taxable estate. For example, you can contribute, in the first year of a 5-year period, up to $75,000 per child ($150,000 if you elect to split the gift with your spouse) gift-tax free as long as there are no other gifts made to the child in the same 5-year period. If an account owner elects to treat a contribution as having been made over a 5-year period and dies before the end of the 5-year period, the portion of the contribution allocable to the remaining years in the 5-year period (not including the year in which the account owner died) would be included in computing the account owner's gross estate for federal estate-tax purposes. Account owners may be required to file a gift-tax return in each of the 5 years. In addition, account owners may wish to consult their tax or estate-planning counsel to ensure that they obtain the tax consequences they desire. 
Tax-free distributions for education
5 year front loading of $15,000 gifts
Grandma & Grandpa combined gift of
$150,000
May be deductible at state level
529 Plans 16

11. Tax Planning Ideas
9) Reduce future income taxation with Roth IRA Conversions
No income limits on conversion
Higher future tax rates
Other cash to pay taxes
Adequate holding period to earn back money (through growth) of money spent on taxable amount of conversion
10) Reduce future income taxation
with life insurance
Tax free withdrawals of cost basis
Tax free policy loans
Roth IRA Tax Considerations:
With a Roth conversion, you pay federal income taxes now on the conversion amount, but no tax on any future earnings as long as when withdrawals of earnings are taken the five-year aging period has been met and you are age 59½ or over. Withdrawals of conversion amounts from Roth IRAs taken prior to age 59 ½ and within five years of the conversion will be subject to the 10% tax on premature distributions.
There are no income limitations on Roth conversions. Reasons to Consider a Roth Conversion:
If you think your tax rate will be higher in retirement than it is today, you may want to consider a Roth IRA conversion.
If you plan to leave your assets to your beneficiaries, consider conversion because they may not have to pay income taxes on that inherited Roth IRA.
If you have other sources of cash (besides the amounts in your IRA) to pay the taxes on a Roth Conversion, then you’ll avoid having any distribution be subject to the 10% tax on premature distributions as well as having more total investable dollars in your Roth IRA, so there is that more money invested and potentially able to grow. Please note, it is possible that Roth IRA investments may also reduce in value due to poor investment performance.
You’ll want to think about having an adequate holding period (before taking withdrawals from the Roth IRA) to at least increase the possibility to earn back the money (through growth) spent on the taxes due to the conversion.
Generally, conversion may not make sense if your time horizon is less than five years, because if you have not met the five-year aging requirement, any withdrawals of the conversion amount are subject to a 10% penalty on premature distributions if taken prior to age 59 ½.
Because you will be required to pay federal income taxes on the conversion now, you need to consider that cost and whether or not you can afford that cost (the additional taxes of the conversion) this year.
Certain kinds of insurance have an underlying investment account that can build up the policy’s “cash value.” Depending on the policy terms, this account can be accessed tax-free during the insured’s lifetime, thereby providing a ready source of tax efficient income. The insured accesses the account through principal withdrawals and loans, which can be repaid out of the death benefit when the policyholder dies. 17