Following the passage of the Tax Cuts and Jobs Act in December 2017, the law’s impact on charitable organizations has come to the fore. Although the law provides for an increase in cash gifts to public charities from 50% of the donor’s adjusted gross income (AGI) to 60% of AGI, the donor must itemize their deductions to realize a tax benefit for their gift. The new law’s increase in the standard deduction to $12,000 for single filers and $24,000 for married couples filing a joint return is expected to result in a sharp reduction in the number of households that itemize their deductions, reducing the marginal tax benefit of gifts to charity by more than 25%. The impact of the law on charities remains to be seen, but with an estimated 72% of charitable gifts coming from individual donors it may be profound. Fortunately, the Protecting Americans from Tax Hikes (PATH) Act of 2015 has made permanent a hitherto underutilized incentive for older Americans to give to charity. The Qualified Charitable Deduction (QCD) is in vogue once again. Continue reading
As the end of the year draws to a close, it is a great time to consider some planning strategies that can help lower your tax bill. While good tax planning may help save you money, it can also you achieve a variety of other financial goals.
Here are a just a few benefits that year-end tax planning may provide: Continue reading
What is does “Required Minimum Distribution” mean?
The Required Minimum Distribution, or RMD as it is often called, are minimum amounts the federal government requires you to withdraw from your traditional IRA each year.
When do I begin withdrawing my RMD?
You must begin withdrawing the required minimum distribution from your IRA by April 1st of the year following the year in which you reach the age of 70 ½. For example, if you turned 70 ½ in 2013, you have until April 1st, 2014 to withdraw your RMD.
What happens if I don’t withdraw my RMD as required?
Failure to withdraw your annual RMD subjects you to a federal penalty tax. This IRS excise tax is equal to 50% of the amount you should have withdrawn. For example, if your RMD is $10,000 and you withdraw only $6,000, the penalty is 50% of the additional $4,000 you should have withdrawn, subjecting you to a penalty of $2,000.
Avoid the unnecessary 50% penalty by properly planning for the withdrawal of your RMD.
What if I am younger than age 70 ½ ?
There are some general rules for IRA withdrawals that are critical to understand, even prior to age 70 ½.
Anytime you withdraw money from an IRA or retirement account, you are subject to tax.
If you are under the age of 59 ½, there is an early withdrawal penalty equal to 10% of the amount withdrawn (in addition to the federal and state income taxes).
If you are between ages of 59 ½ and 70 ½, if you withdraw money from an IRA account, you will be subject to federal and state income taxes.
If you are over the age of 70 ½, you must begin withdrawing money from your IRA account (see above for more information).
I turned 70 ½ this year, what are my options?
If you turned 70 ½ in 2013, you are allowed to take your first RMD any time between January 1, 2013 and April 1, 2014. For all future years, you can withdraw that particular year’s RMD between January 1st and December 31st of that year.
This does not necessarily mean you should wait until April 1, 2014 to withdraw your 2013 RMD. If you withdraw your 2013 RMD in 2014, you will still be required to withdraw your 2014 RMD by December 31, 2014; this would result in two IRA distributions in the same year and could increase your overall tax bill.
Proper planning should be done before the end of the year to determine the optimal tax and financial strategy for you. Contact us to discuss your options.
With November around the corner, we’re beginning to think about year-end tax & financial planning.
In fact, now is a great time to focus on last minute tax and financial planning moves to save money for 2013 (and possibly longer!).
Here are a few ways to save $ before New Year’s Day:
1. Make charitable gifts of appreciated stock. If you have appreciated stock that you’ve held for more than a year and you plan to make a significant charitable contribution before the end of the year, you’re probably best off keeping your cash and donating the stock instead. Why? You’ll avoid paying tax on the appreciation and you’ll be able to deduct the entire charitable gift at its full fair market value. It’s a win for you & for the recipient of your gift.
2. If it looks like you will owe taxes for 2013, adjust your federal income tax withholding before the end of the year. If you missed the mark on planning ahead, there is still time to make adjustments and avoid penalties.
3. If you have a healthcare Flexible Spending Account (FSA), use it, don’t lose it! Make sure to take advantage of spending the pre-tax money in the account before the end of the year for any remaining amounts over $500. Anything under $500 can now be “rolled over” into the new year, a newly modified ruling by the IRS.
4. If you pay quarterly estimated taxes (which are due on January 15, 2014), you can prepay the state estimated tax payment by the end of the year to receive a tax deduction (subject to certain limitations and the alternative minimum tax).
5. If you are a senior over the age of 70.5:
- Make charitable donations from your IRA account, which are set to expire this year.
- Make sure you take your required minimum distribution (RMD) from your IRA. Failure to take your RMD results in a penalty of 50% of the amount not withdrawn.
6. If you work & have a 401K:
- Make sure to maximize your 401K contributions – don’t miss out on money you can contribute on a pre-tax basis (not to mention employer matching opportunities).
7. If you’re self-employed:
- If you are a sole proprietor, don’t miss the opportunity to minimize taxes by employing your children under the age of 18. Paying wages to children under 18 shifts income to your child who is in a lower tax bracket; in fact, you may be able to avoid taxes entirely because of your child’s standard deduction (assuming the wages paid are less than or equal to the 2013 standard deduction of $6100). Additionally, since your child is earning income, he/she is eligible to contribute to an IRA account, thereby getting an early start on saving for retirement.
- If you are looking to reduce your tax bill while saving for retirement, you may wish to consider establishing a retirement plan before the end of the year (such as a defined contribution plan or a defined benefit pension plan). These plans need to be established before the end of the year and contributing money now to these accounts starts the tax-deferred growth on your contributions.
Now is a great time to make year-end adjustments. If you are interested in learning more about year-end financial planning, call us.