Category: tax

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, irs.gov, 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.

If you like this article, please follow me at any of the following places:

https://twitter.com/RoshanLoungani

https://medium.com/@RoshanLoungani_85629

https://plus.google.com/117866529459426703812

http://roshanloungani.net/

Year End Tax Tips

It is time to make some year end tax planning moves.    Following is an article with some tips that I think will help most people.

https://www.yahoo.com/finance/news/5-things-to-do-by-new-years-eve-to-get-a-bigger-tax-return-185655740.html

If you like this article, please follow me at any of the following places:

https://twitter.com/RoshanLoungani

https://medium.com/@RoshanLoungani_85629

https://plus.google.com/117866529459426703812

http://roshanloungani.net/

A Quick Look at the Presidential Candidates’ Tax Proposals

Though tax policies haven’t received top billing in this year’s presidential election dialogue, they’re still part of the conversation. Here’s a quick review of each candidate’s tax proposals based on information released by their campaigns. Keep in mind that regardless of who wins in November, any changes to tax policy would require congressional action.
Note: On August 8, 2016, Donald Trump announced a revised tax plan. Full details of the new plan were not immediately available on the campaign’s website. The following summary is based on the original plan announced by the Trump campaign and what we currently know about the revised plan.

Tax brackets
Plans released by the Trump campaign initially proposed reducing the current seven tax brackets to four, with the top rate dropping from 39.6% to 25%, and no tax due for individuals with incomes under $25,000 ($50,000 for married couples filing jointly).1 Trump has recently announced changes to his tax proposal, including a consolidation to three tax brackets: 12%, 25%, and 33%.2 This change moves the Trump campaign’s plan closer to the tax reform plan announced by House Republicans in June of this year.3 The Clinton campaign’s tax plans do not reflect changes to existing tax brackets, but do support a new 4% “fair share surcharge” on taxpayers with an adjusted gross income (AGI) exceeding $5 million.4.
Long-term capital gains and qualified dividends
Currently, lower tax rates generally apply to qualified dividends and to capital gains resulting from the sale of assets held longer than one year. Plans released by the Clinton campaign recommend adjusting the holding period schedule for long-term capital gains, increasing the minimum holding period from one to two years and adding medium-term holding periods that gradually reduce the top long-term rate down to 20% for assets held for more than six years.5 Plans initially released by the Trump campaign indicated that the top rate of 20% would continue to apply, with no change to current holding requirements.6

Alternative minimum tax (AMT)
The AMT is a separate, parallel federal income tax with its own rates (26% or 28%, depending on income) and rules. It is intended to ensure that taxpayers who use certain strategies to reduce their tax liability pay a minimum amount of tax. The Trump campaign has called for elimination of the AMT.7 The Clinton tax plan would presumably add a new tax layer, imposing a minimum tax due of 30% on those with incomes exceeding $1 million.8
Deductions, exemptions, and exclusions
Proposals released by both candidates would limit itemized deductions for higher-income filers. The Clinton team’s plan would limit the benefit of itemized deductions and certain items that are excluded from income (e.g., tax-exempt interest) to 28%, which means that the benefit of these items would be reduced for individuals in higher tax brackets; charitable deductions would be excluded from this limitation.9 The Trump team’s plan would accelerate the limitation of itemized deductions and the phaseout of personal exemptions for higher-income filers, though the treatment of deductions for charitable giving and mortgage interest would remain unchanged. The original Trump campaign tax plan also indicated that the ability to exclude earnings in life insurance contracts from income would be phased out for high-income individuals.10
Estate tax
The two campaigns have very different views of the existing federal estate tax. The Clinton campaign proposes increasing the top estate tax rate from 40% to 45%, and decreasing the estate tax exclusion from $5.45 million to $3.5 million.11 The Trump campaign proposes eliminating the federal estate tax.12
1, 6, 7, 10) “Tax Reform That Will Make America Great Again,” donaldjtrump.com/positions (July 2016)
2, 12) “Outline of Donald J. Trump’s Economic Vision: Winning The Global Competition,” donaldjtrump.com/positions (August 12, 2016)
3) Kyle Pomerleau, “Details and Analysis of the 2016 House Republican Tax Reform Plan,” Tax Foundation, July 5, 2016
4, 9, 11) “Investing in America by Restoring Basic Fairness to Our Tax Code,” hillaryclinton.com/briefing (July 2016)
5) Kyle Pomerleau and Michael Schuyler, “Details and Analysis of Hillary Clinton’s Tax Proposals,” Tax Foundation, January 26, 2016 (The 20% rate would be increased by the 3.8% net investment income tax, as well as the 4% surtax, if applicable.)
8) Richard Auxier, Len Burman, Jim Nunns, and Jeff Reheel, “An Analysis of Hillary Clinton’s Tax Proposals,” Tax Policy Center, March 3, 2016