Category: Savings

Year-End Charitable Giving

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

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).

A word of caution

Be sure to deal with recognized charities and be wary of charities with similar sounding names. It is common for scam artists to impersonate charities using bogus websites and through contact involving emails, telephone, social media, and in-person solicitations. Check out the charity on the IRS website,, using the Exempt Organizations Select Check search tool. And don’t send cash; contribute by check or credit card.

Tax deduction for charitable gifts

If you itemize deductions on your federal 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% of your AGI for the year, and other gifts to charity may be limited to 30% or 20% of your AGI. Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. Your overall itemized deductions may also be limited based on your AGI.

Make sure you retain proper substantiation of your charitable contribution for your deduction. In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity. If you make any noncash contributions, there are additional requirements.

Year-end tax planning

When making charitable gifts at the end of a year, it is generally useful to include them as part of your year-end tax planning. Typically, you have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at the lowest rate possible, and time your deductible expenses so they can be claimed in years when you are in a higher tax bracket.

For example, if you expect that you will be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction next year when the deduction results in a greater tax benefit. Or you might shift the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction amount. And if the income percentage limits above are a concern in one year, you might consider ways to shift income into that year or shift deductions out of that year, so that a larger charitable deduction is available for that year. A tax professional can help you evaluate your individual tax situation.

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How Much Do You Need For Retirement

Most people wonder how much they need to save for retirement.   We calculate a custom target for our clients.   Following is an interesting article that has some general targets:

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Is 70 the New 65? Why Americans Are Working Longer

Roshan Loungani is sharing a great video on retirement.   Please click on the link below:

Is 70 the New 65? Why Americans Are Working Longer



I recently had a client ask me if they should take out a mortgage on their home to create a tax deduction.   Their house is paid off, they are in the 25% tax bracket.

Most people think it is a good idea to have a mortgage, especially if your income in retirement is primarily taxable as ordinary income (Pension, 401K, 403B Traditional IRA, Thrift Savings Plan etc.).   While I am not opposed to a tax deduction, it is important to note that the deduction is based on the interest that you are paying, not the total mortgage payment.   That means you are paying someone interest to create this deduction and you are only deducting a portion of your payment.

The conventional wisdom is that you can earn more money investing than the cost of the mortgage interest.  While this is probably true, depending on your risk tolerance and your investment performance it may not be worth it.

Following are some numbers assuming a mortgage of $110,000, at an interest rate of 4%.    The $110,000 is then invested earning 4-7%.    The calculation is based on earning the same rate of return each and every year with no volatility.  This is not very realistic, the higher rate of return you target, the greater the volatility.


Snip of Mortgag Chart

Stating the obvious, the greater the rate of return, the greater the impact.   I will be reviewing this with my client and they will determine if having a mortgage and creating a tax deduction is worthwhile.

If it was me, I would not take out the mortgage.   An uncertain $1,279 – $3,754 per year does not seem worth it.

How Interest Rate Hikes Affect Retirees

business-money-pink-coins-largeIn December, the Fed increased interest rates for the first time since mid-2006. We know that the realities of the 2008 financial crisis led the banking system to lower the rate to zero during its height, and remain there for nearly seven years as America’s economy recovered. During that time, however, savers have been on the short end of the stick. Retirees, especially, saw much lower returns and higher risks than imagined, causing discontent even with news of recovery and a thriving economy in the backdrop.

Now, as the Fed is expected to gradually increase rates in the coming months, claims of recovery appear more realistic than ever. First, one must understand that the Fed’s decision to hike up interest serve as a balance to consumer spending and aid in curbing inflation. By doing so, the bank increases the cost of capital, making it more expensive to get things like loans and purchase cars and similarly large items. As a result, the rate at which most people do so decreases, which may seem like the antithesis of how the economy should work, but it is effective.

Naturally, many have questions about just how effective it could be, and how higher interest directly affects their personal lifestyles. The answer is, it depends. As with most situations pertaining to finances, there are no absolutes; however, there are a few things retirees can expect as a result of this move which are promising.

  1. Better Returns for Savers:
    Saving makes more sense (and more cents) as interest rates climb. Investing in CDs over savings accounts typically generates more income at a fixed rate, depending on the terms. This wouldn’t be as significant in a near-zero interest situation, but with recent hikes, this is a smart financial decision with low-risk and more money for the future.  Shop around for the best deals or consult with your financial advisor for assistance.
  2. Increased Portfolio Options:
    Many have chosen to fill portfolios with stocks because of a greater chance for return. But in higher interest situations, bonds can be a great asset, and are less prone to risk than stocks. Now, that doesn’t mean that current bonds won’t be affected. Longer-dated bonds will lose value as yields and interest move in opposite directions. However, buying shorter maturities is a great defense, and a trend more people are moving toward.

    By that same measure, stocks can be beneficial for those who are more conservative. As I mentioned previously, the Fed’s actions are a sign that the economy is progressing in the right direction. Kira Brecht at U.S. News suggests that
    sectors like banking, energy, and technology are the best options in this type of situation. It’s worth consideration.

  3. More Money From Annuities:
    Annuities have been steadily declining due to low interest rates. According to the Secure Retirement Institute, sales fell 5% in the first half of 2015, in comparison to the year prior. To put that in perspective, sales rose more than 10% in 2006 but only a paltry 3.8% in 2014. However, that could change. Fixed rate annuities could provide a steady source of income and security in the event that rates drop again. Purchasing from different companies at different times provides an extra cushion in that all of your eggs won’t be in a basket that could be shattered should a company collapse or fall victim to bankruptcy.

Despite these benefits, one could experience adverse effects of hikes in other areas. Credit card users and those considering refinancing their homes may not have much reason to smile. However, gradual shifts provide a time to plan and strategize in ways that make the most sense for your future. If you haven’t already, you should start thinking about how to take advantage of the benefits of this once in a decade moment.