Four year-end tax strategies to consider

It’s hard to believe we’re fast approaching the end of 2019, but it’s true. Here are four things to consider as you weigh potential tax moves between now and the end of the year. 1. Be smart about your charitable giving If you’re already inclined to donate to charity, then consider donating appreciated securities rather than cash to your favorite charity or to a donor advised fund. Donors who can afford to put away more than $100,000 may want to consider starting a charitable lead trust (CLT). Charitable lead trusts are designed to provide income payments to at least one qualified charitable organization for a period measured by a fixed term of years, the lives of one or more individuals, or a combination of the two; after that, trust assets are paid to either the grantor or to one or more noncharitable beneficiaries named in the trust instrument. 2. Maximize retirement savings Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your taxable income. If you haven’t already contributed the maximum amount allowed, consider doing so by year-end. If you’re a business owner, consider opening a traditional 401(k) profit

December 10, 2019 No Comments

How to avoid this common IRA rollover mistake

The once-per-year limit on IRA-to-IRA rollovers is a terrible trap for unwary taxpayers. It’s easy to fall into, but also easy to avoid. Here is the rule: If you receive a distribution from an IRA, you cannot roll that distribution over into any IRA if the distribution is received by you less than 12 months after another IRA distribution you received that you rolled over into an IRA. That’s according to Internal Revenue Code Section 408(d)(3)(B). Meant to prevent IRA owners from “kiting” their IRA distributions (keeping money perpetually outside the IRA by a series of rollovers), the rule traps mostly innocent bystanders. For example, Investor A inherits an IRA from her deceased spouse. She cannot roll over a distribution from that inherited IRA if within the past 12 months she received a distribution from her own IRA account that she rolled over tax-free into an IRA. She’ll have to wait to take the distribution from the inherited IRA until after the 12 months have passed. Or, more tragically, Individual B who is losing mental capacity takes distributions from his IRAs without being aware of the financial effects. A guardian is appointed for him and tries to roll the money

June 28, 2019 No Comments

Top three reasons to hold a vacation home in an LLC

If you’re in the market for a vacation home, an LLC could be a smart way to own that property. An LLC, or limited liability company, provides the tax planning and ownership flexibility of a partnership along with the liability protection of a corporation. In most states an LLC can be formed for non-business purposes, including owning a vacation home. Here are the top three reasons to considering holding your vacation property in an LLC: Asset and creditor protection: Let’s say a visitor hurts their neck falling down the front steps of a family vacation home and receives a large settlement from a jury as a result. If you hold your vacation home in an LLC, your family exposure to the settlement would be limited to the investment in the LLC–in other words, the vacation home itself. Your primary residence and other assets, as well as those of your co-owners, would be shielded. Of course, you’ll still need adequate liability insurance to supplement the protection offered by the LLC. Property management: If you own a vacation property with other family members, setting up an LLC will allow you to set some terms. Things like deciding who is allowed to use

June 28, 2019 No Comments

Personal deduction planning

Paying taxes is part of the responsibility of living in the United States. But most people understandably don’t want to pay more than they have to. An important part of minimizing your federal income tax liability is to understand the rules and make the most of your tax planning opportunities. Personal deduction planning is one aspect of tax planning. You should aim to use your deductions in the most efficient manner and take all deductions to which you’re entitled. Deductions lower your taxable income Your first step is to understand how deductions work. You subtract certain deductions from your total income to arrive at your adjusted gross income (AGI); these deductions are commonly referred to as adjustments to income or as “above-the-line” deductions. Then, you subtract other deductions and exemptions from your AGI to determine your taxable income; these deductions are sometimes referred to as “below-the- line” deductions. Your tax liability is calculated based on your taxable income. Generally speaking, therefore, the higher your deduction level, the lower your tax liability. You can either take a standard deduction or itemize After you’ve computed your AGI, you’ll generally want to subtract the greater of either the standard deduction or the total

March 5, 2019 No Comments

Tax planning for the self-employed

Self-employment is the opportunity to be your own boss, to come and go as you please, and oh yes, to establish a lifelong bond with your accountant. If you’re self-employed, you’ll need to pay your own FICA taxes and take charge of your own retirement plan, among other things. Here are some planning tips. Understand self-employment tax and how it’s calculated As a starting point, make sure that you understand (and comply with) your federal tax responsibilities. The federal government uses self-employment tax to fund Social Security and Medicare benefits. You must pay this tax if you have more than a minimal amount of self-employment income. If you file a Schedule C as a sole proprietor, independent contractor, or statutory employee, the net profit listed on your Schedule C (or Schedule C-EZ) is self-employment income and must be included on Schedule SE, which is filed with your federal Form 1040. Schedule SE is used both to calculate self-employment tax and to report the amount of tax owed. Make your estimated tax payments on time to avoid penalties Employees generally have income tax, Social Security tax, and Medicare tax withheld from their paychecks. But if you’re self-employed, it’s likely that no

March 4, 2019 No Comments

5 tips for tax-smart charitable giving in 2018

U.S. tax law has changed since you filed your federal taxes for 2017; the Tax Cuts and Jobs Act takes effect for 2018 tax filings. Since charitable giving is one of the few deductions that wasn’t eliminated or capped, donations to registered nonprofits are one of the best ways to reduce tax payments for taxpayers who itemize. If charitable giving plays a role in your tax filing, here are five things you should keep in mind for tax-smart strategic giving and your 2018 taxes. 1. Start planning now If you plan to claim charitable donations on your 2018 taxes, it’s a good idea to start talking to your financial advisor now so you have time to make informed decisions. If you received a windfall or more taxable income than you expected this year, charitable giving can be especially important to help offset the corresponding increase in taxes. This could apply if, for example, you got a big bonus this year, if you sold a business, or if the assets in your portfolio greatly increased in value in 2018. 2. Evaluate your options for HOW to give You may already know which charities you want to support, but from a

December 10, 2018 No Comments

Naming someone other than your spouse as the beneficiary for your IRA

Naming a beneficiary for your traditional IRA or employer-sponsored retirement plan may be one of the most important financial decisions you ever make. The beneficiary (or beneficiaries) you name will receive the funds remaining in your IRA or plan after you die, so consider your loved ones’ future needs. However, choosing the right beneficiary is often more complicated than that. If you’re married, your first thought may be to name your spouse as the primary beneficiary of your IRA or plan. Naming a spouse is very common and can make sense for several reasons. But whether you’re married or not, naming someone other than a spouse as your retirement account beneficiary may sometimes be a better choice. Children, grandchildren, other relatives, and close friends are popular beneficiary choices for IRA owners and plan participants. You should consider your options and seek professional advice to make the right choice. Advantages of naming a child, grandchild, or other individual When you take a distribution from your traditional IRA or retirement plan, you generally have to pay federal (and probably state) income tax on all or a portion of it. For federal income tax, distributions are taxed at a certain rate according

July 7, 2018 No Comments

10 year-end tax tips for 2017

Here are 10 things to consider as you weigh potential tax moves between now and the end of the year. 1. Set aside time to plan Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There’s a real opportunity for tax savings if you’ll be paying taxes at a lower rate in one year than in the other. However, the window for most tax-saving moves closes on December 31, so don’t procrastinate. 2. Defer income to next year Consider opportunities to defer income to 2018, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year. 3. Accelerate deductions You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying

October 31, 2017 No Comments

Three strategies to reduce your RMDs

Nothing lasts forever, not even the tax deferral on your IRA. When you turn 70½, the government will require that you withdraw money from your IRA; those withdrawals are known as required minimum distributions, or RMDs. But what if you don’t need the money? What if you want to avoid a tax hit? Here are three strategies to help reduce your RMDs. Be charitable. If you’re 70½ and planning on giving money to charity anyway, consider making a qualified charitable distribution (QCD) from your IRA. You can transfer up to $100,000 annually from your IRA to a charity free to tax. The QCD will satisfy your RMD without increasing your taxable income. Be careful though — make sure your QCD is done properly. Go Roth. If reducing RMDs is a top concern for you, you may want to consider converting some or all of your IRA into a Roth. This is because you aren’t required to take RMDs from your Roth IRA during your lifetime. While you will pay taxes on your conversion, you can exchange the one-time tax hit for a lifetime of never having to worry about RMDs and their tax consequences. Note: your beneficiaries will need to

September 7, 2017 No Comments

2016 Year-End Financial Planning Basics

As we end the year, it’s time for some housekeeping tasks such as updating your beneficiary information for retirement accounts or other investment accounts. Plus, the window of opportunity for many tax-saving measures ends on December 31. There’s still time to affect your bottom line for the 2016 tax year, but you need to act quickly. Here’s a roundup of some key concepts you may want to act on as we approach the end of the year. Timing is everything If there’s a chance you’ll be in a lower income tax bracket next year, consider deferring income to 2017. That could mean delaying a bonus, rental income, or payment for your services. Doing so may not only allow you to postpone paying tax on the income, but ultimately your tax bill may be lower. Similarly, you may want to accelerate deductions into 2016. If you itemize deductions, you might accelerate some deductible expenses like medical expenses or state and local taxes by making payments before the end of the year. Or you might consider making next year’s charitable contribution this year instead. Some clients will find it better to do just the opposite: accelerate income into 2016 and postpone your

December 5, 2016 No Comments

The benefits of tax planning

Taxes can take a big bite out of your total investment returns, so it’s helpful to look for tax- advantaged strategies when building your portfolio. You don’t want to pay any more in tax than you have to. That means taking advantage of every strategy, deduction, and credit that you are entitled to. Tax-deferred and tax-free investments Tax deferral is the process of delaying, until a future year, the payment of taxes on income you earn in the current year. For example, the money you contribute to a retirement account (such as a 401(k) or deductible IRA) isn’t taxed until you withdraw it, which might be 30 or 40 years down the road! Any earnings the account generates are also allowed to grow tax-free. This can be very beneficial because the money you would have spent on taxes remains invested and for your own benefit. In the early years of an investment, the benefit of compound growth may not be very significant. But as the years go by, the long-term boost to your total returns can be dramatic. Tax deferred is not the same thing as tax free. Tax deferred means that the payment of taxes is delayed, while tax

April 8, 2014 No Comments

Year-end charitable giving

As the end of the year approaches, charitable giving often comes to mind. Charitable giving can be enhanced using income tax deductions, and so it can be much more effective when it is included as part of your year-end tax planning. Example(s): Assume you are considering making a charitable gift equal to the sum of $1,000 plus the income taxes you save with the charitable deduction. With a 28% tax rate, you might be able to give $1,389 to charity ($1,389 x 28% = $389 taxes saved). On the other hand, with a 35% tax rate, you might be able to give $1,538 to charity ($1,538 x 35% = $538 taxes saved). Tax deduction for charitable gifts If you itemize deductions on your income tax return, you can generally deduct your gifts to qualified charities. However, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). For example, your deduction for gifts of cash to public charities is generally limited to 50 percent of your AGI for the year, and other gifts to charity may be limited to 30 percent or 20 percent of your AGI. Disallowed charitable deductions may generally be carried

December 9, 2013 No Comments

What to do with your required minimum distributions (RMDs)

Required minimum distributions, better known as “RMDs,” refer to the amount of money that is required to be distributed from pre-tax retirement accounts, like IRAs, after age 70.5. If the amount is not withdrawn, a 50% penalty may be assessed. While some retirees might take the RMD for necessary personal expenses, there are other options available to those who do not need the money. Here are two simple ideas for what you can do if you don’t anticipate needing your RMD: 1) Convert your IRA to a Roth: The RMD itself is not available for a conversion (after all, the government wants its tax dollars), but you can convert an IRA account into a Roth IRA. The conversion will be taxable, but the post-tax money can grow in a Roth IRA account tax-deferred afterwards without any RMDs. This is a good solution for those who are looking to leave their IRA account to heirs who may be in the same or higher tax bracket than themselves. Please speak with your investment and tax advisor before doing a Roth conversion as mistakes can be very costly. 2) Donate to charity: In 2013, up to $100,000 can be transferred directly from an

July 11, 2013 No Comments