Taxpayers have two options when they file their federal income tax returns: take a standard deduction or itemize deductions.

With TJCA, the standard deduction available for taxpayers became nearly twice its previous amount. For 2019, the standard deduction is increasing to $12,200 for individuals, from $6,350 (pre-TCJA) and $24,400 for married couples filing jointly. When you itemize, you basically add up a number of different deductions instead of taking one fixed dollar amount as with the standard deduction.  One typically selects the option that reduces their overall tax liability the most.

This increase in the standard deduction makes it less likely that the sum of a taxpayer's itemized deductions will exceed the larger standard deduction, especially with new limits in place on deductible state, local or property taxes (cap of $10,000).

A potential side effect of fewer taxpayers itemizing their deductions is that these taxpayers may choose to reduce contributions to charitable organizations because their contributions will no longer reduce their personal income taxes.

A strategy that allows individuals to continue to donate and receive tax benefits is to “bunch” donations to charities in a single year, while limiting donations in other years. When individual taxpayers contribute by bunching donations, they combine multiple years’ worth of charitable contributions into a single year. In the bunch year, the larger charitable contribution, combined with the other itemized deductions will increase the likelihood of exceeding the standard deduction and thus provide the taxpayers with incremental tax savings.

One of the TCJA’s most prominent changes is the increase in the lifetime estate and gift tax exemption, or the amount one may transfer to another without incurring a gift or estate tax. In a calendar year, you can currently give a gift of $15,000 to an individual and not incur a gift tax. If you gift an amount in excess of this exclusion, you can tap into what is called the lifetime estate and gift tax exemption, which shelters you from paying gift tax up to a certain amount. Before TCJA, this amount was $5.6 million for taxpayers filing single. This is increasing to approximately $11.4 million in 2019 for individuals and $22.8 million for married couples filing jointly.

Estate planning documents may need to be updated with the higher lifetime estate and gift tax exemption amounts to reflect the donor’s original intentions. For instance, a will, or a document that dictates how assets are distributed at death, might indicate that a beneficiary will receive assets until the donor’s lifetime estate and gift tax exemption has been maximized and that a second beneficiary would receive the remaining assets. Because the new exemption is significantly higher, in this scenario, the first beneficiary would likely receive the totality of the assets.

The higher tax exemption can make gifting a highly valued property appealing, but it’s essential to keep in mind the capital gains tax if the recipient subsequently sells the gift. The value of a property typically increases over time. Therefore, the capital gains tax can be significant once the transferred property is valued and sold.  

It may be more effective to create an estate plan where a beneficiary inherits a property (at donor’s death). Unlike gifting, the basis of the asset will be adjusted upwards when the property is inherited to reflect the current market value. This can materially reduce capital gains taxes.

Instead of making a direct gift, it’s possible to establish a family LLC as a way of owning assets. A tool widely used in estate planning, one’s interest may qualify for a lower appraisal value due to its lower liquidity and control. The same asset could be gifted directly to a beneficiary and be valued much higher due to its high liquidity and immediate control. Assets are typically protected from creditors’ claims as well.

The grantor of an irrevocable trust fund can swap an asset from the trust for another of equal value. Removing an asset from an irrevocable trust with this strategy causes its value to be adjusted upwards to reflect the current market value. Adjusting upwards the value of an asset means that the capital gains tax would be lower if the beneficiary decides to sell the asset in the future.