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Even during the dog days of summer, tax planning is at the top of our agenda

Even during the dog days of summer, tax planning is at the top of our agenda

Holy moly, it’s hot out there!We’re deep in the dog days of summer, when laziness and lethargy rule. Luckily for me (and my clients too!), I’ve been tucked away for two and half days in a perfectly chilly conference room at the IRS Nationwide Tax Forum in San Diego. I’m here, thwarting the dog days, to study up on something that matters more to your finances than you may realize: the new tax laws and how they affect your tax strategy for 2018.

While I am sure this may not be most people’s vision of a perfect late-summer escape, here’s why it is at the top of my list—and why that matters to you and your wallet:

  • The new tax law is (very) complicated!
    While the idea behind the Tax Cuts and Jobs Act (TCJA) may have been to simplify the tax code, getting the details of the law hasn’t been easy for CPAs, EAs, CFPs—and even the IRS! Even now, in mid August, we’re being told that certain forms and regulations are not yet available, but that they are “imminent.” Not only is that less than comforting, but the lack of information is also making it extremely challenging for us to create strategies for our clients that we can be confident will be effective. That said, the topics at this forum are advanced, and they do cover the new rules, laws, and regulations that are clear at this time. I’m here to study the facts, ask questions, and get answers so we can create smart strategies that are compliant and that are designed to work in your best interest.

     
  • Taxes and financial planning go hand in hand.
    As a CFP (Certified Financial Planner professional), my number-one goal is to help give you greater financial confidence. I do this by helping you create and protect the wealth you need to live your ideal life and (here’s the key!) by working to maximize your after-tax cash flow from your income and investments. Considering that the “average” American with an “average” annual income of just under $75,000 pays out a whopping 24% of their income on taxes (excluding sales, FICA, and Medicare), building a smart, compliant tax strategy is a key part of that equation. In down markets, that may mean harvesting losses for use at optimal times. In any market, it means locating assets in appropriate accounts where they’ll be tax efficient, planning backdoor Roth IRAs to give higher earners the benefits of a Roth IRA, determining when and how to defer Social Security claims, and much more.
  • Not all financial planners get it.
    It’s true that the CFP® curriculum includes tax planning and strategy, and CFP candidates are all required to study individual and business tax laws relating to trusts, estates, property, passive activity, at-risk rules, charity, stock options, inter-family matters, state laws, and more. Unfortunately, many financial planners don’t keep up with changes in the tax laws once they’ve passed the exam. (Don’t even get me started on the practices of uncredentialed “advisors”!) The people I have been fortunate to be sitting with for the past two days are all committed to tax planning excellence, and I love that I’m learning as much from them as I am from the IRS team that is hosting the event. These are “my people”!

     
  • There’s simply no such thing as “tax season.”
    August may seem an unlikely time to focus on taxes, but from a planning perspective, tax season lasts all year long. All too often, people opt see a tax pro when they need forms filled out just in time for April 15th. When they take that approach, they miss out on the greatest benefits of tax advice: planning. In reality, the sooner we can start building effective tax strategies under the new law, the better. As an IRS Enrolled Agent, one of my promises to clients is that all of your planning and investing decisions include tax optimization as a top priority. Fulfilling that promise takes training, continuing education, and practice. And that’s precisely why I’m here. (The air conditioning and the San Diego breeze are pretty nice perks as well.)

As we muddle through these last days of summer, make tax planning a priority. At the conference, I attended several sessions about the new Section 199A Qualified Business Income deduction (ask me about it). I also learned that the current withholding tables probably understate withholding, so it’s vital to compare your actual withholding amounts with your projected tax bill now to avoid surprises. It doesn’t stop there. For 2018 there is no unreimbursed employee business expense deduction; ask your employer to consider an accountable plan so he/she can capture the deduction. Look for opportunities to amend prior year returns for items like depreciation and 179 deductions. Personal exemptions have been eliminated but may be made up through increased and additional credits for children and other dependents. Most importantly, if you get a notice—any notice—from the IRS, contact us right away so it can be addressed quickly and properly.

It’s true that the new tax law is confusing (that’s a polite word for it!), but the good news is that knowing the facts and participating in smart planning can have tremendously positive results on your financial picture. While on a break at the conference, I received a call from a client I’ve worked with for years. Gary was walking into his estate attorney’s office with numbers I had provided regarding some community property and the inherited basis. “This looks too good to be true, Lauren. Are you sure the numbers right?” I assured him that, yes, the numbers were accurate—and I let him know that the happy surprise was due to changes in the tax law. Knowing that those changes (and my knowledge of them) saved him a bundle had me smiling all afternoon.

When it comes to your finances, it’s often easier to focus on the things that make the headlines: gaining a few tenths of a percent on CD yields, the dramatic highs and lows of the stock market, and more. But it is taxes that often have the greater impact on how much of your income and your investment returns stay in your pocket. The new tax law includes lots of changes. Know that we’re paying close attention to those changes in the dog days of summer and all year long to help ensure the tax law is being applied in your best interest and, hopefully, in your favor.


NOTE: BEWARE OF IRS SCAMS!
This has been a big topic at the conference. Scams are more prevalent than ever, and phishing scams have bilked more than 15,000 people out of an estimated $272 million dollars! Remember that the IRS will never contact you via phone or email demanding payment! If you are contacted and suspect a scam, forward it to  This email address is being protected from spambots. You need JavaScript enabled to view it. . And talk to us first before handing your hard-earned dollars over to anyone claiming to be from the IRS. We’re here to help!


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3 tax-smart ways to make charitable gifts in 2018 and beyond

3 tax-smart ways to make charitable gifts in 2018 and beyond

Before TCJA (the new tax law), charitable deductions were a pretty easy piece of the financial puzzle. You chose your charity, donated a certain amount, and deducted that amount from your taxable income. Sure, giving pre-tax dollars was better, but even if you simply wrote a check to your charity of choice, you got a tax deduction. Oh, how times have changed! And those changes have me worried not only about the much-needed cash flow to charities, but also about the impact on our clients—especially those who give $1,000 or more over the course of the year. The good news: careful planning now can save you money on taxes in the coming years, and it can also help ensure your gifts are making a real financial difference to the organizations that rely on your help year after year.

The change that is likely to impact charities most is the increase in the standard deduction. The deduction for married couples filing jointly has nearly doubled, from $13,000 to $24,000. For single taxpayers and those who are married and file separately, the deduction will rise from $6,500 to $12,000. This increase presents a challenge when it comes to charitable giving. Because most taxpayers won’t exceed the standard deduction, they will no longer need to itemize. And without a direct tax benefit, charitable gifts may be much less attractive—at least from a tax perspective.

Luckily, there are strategies to help charitable donors maintain a tax advantage while continuing to support the good work of the organizations they support. Here are three options to consider today:

  • “Bunch” your gifts to deduct years of gifts in a single calendar year.
    If you have the cash on hand, you can bunch multiple years of gifts into one tax year. If you’re single, your standard deduction is now $12,000. Let’s assume your property taxes are $6,000 and your state income tax is $5,000, equaling $11,000 in deductions. If you then give $1,000 to charity, even though you max out your standard deduction, you receive no tax benefit. However, if you plan to give $1,000 each year for the next five years, opting to give a lump sum of $5,000 in 2018 will result in a taxable deduction of $4,000 beyond the standard deduction. Your charity of choice will benefit from the lump-sum donation, and so will your wallet come tax time next year. The only limit is that you can only deduct cash donations of up to 60% of your Adjusted Gross Income (AGI) in a single year. (And you can still use appreciated securities to fundthe donation.)

     
  • Create your own “charitable foundation” using a Donor Advised Fund.
    If your contributions to a particular charity are large, it may make sense to set up a DAF, or Donor Advised Fund (it’s easy, and yes, we can help!). A DAF allows you to make a lump-sum donation to take advantage of the up-front charitable tax deduction in the current year. But unlike bunching contributions in a single year, the DAF gives you the flexibility to spread your gift out over time. You can even name your children as “successor grantors” for the fund to effectively pass down the assets of the fund tax-free and help support their own gifting in the future. (And you can supercharge the contribution to your DAF by gifting appreciated securities.)

     
  • Give via a Qualified Charitable Distribution.
    If you’re over 70½, a Qualified Charitable Distribution (QCD) allows you to give to your charity of choice with pre-tax money, while also reducing your taxable income. It is a method of giving that saves you taxes twice. For example, let’s say you have an IRA with Charles Schwab and your RMD (Required Minimum Distribution) from your IRA is $20,000. Using a QCD to make your annual $1,000 pledge, Charles Schwab writes two checks: one for $1,000 that goes directly to your charity for it to use tax-free, and another for $19,000 that goes directly to you as taxable income. The QCD amount (up to $100,000 annually to any qualified charity) is excluded from your adjusted gross income, and you benefit from a full $12,000 standard deduction. It’s a great way to optimize tax savings compared to using a typical after-tax IRA distribution. You can use a QCD to give up to $100,000 annually—even if that amount exceeds your RMD. Note: you can’t request a QCD until you hit that magic age of 70½. It’s one of the perks that comes with age!

One last note: If charitable giving is part of your legacy planning, donating assets from your IRA is often a smart option—the charity can use the gift tax-free, and your heirs won’t pay a dime in taxes on your gift.

In the face of the new tax laws, careful, multi-year planning is more important than ever. That’s especially true when giving to charity. But by making ‘doing good’ an intentional piece of your overall financial plan, you can use tax law to your advantage to make every dollar count and, most importantly, continue to support the charitable organizations that are making a real and positive difference in our world today.

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >