Navigating the investment world today is not a "piece of cake" --- it's tricky – can be very stressful. What will happen next to quickly affect sudden and strong moves in the market indices?
Well, there are other issues which have and continue to cause people to lose money for which some good advice could be received. Taxes --- oh yeah, Taxes.
While one doesn't want to temporarily lose some value in an investment account (notice I mentioned "temporarily"), one should be very interested in protecting themselves from losing or paying more in taxes than is needed. Once those taxes are paid, that's "good-bye money" forever – not just a temporary loss!
1) Bumped the AGI (Adjusted Gross Income) limit on cash donations to charitable organizations to 60% (up from 50%).
• Carry-forward rules allow donors who contribute more than 60% of AGI in a single year to carry forward the excess of the gift as a deduction for the next 5 years.
2) The most important change under the 2019 reform is probably the enhanced Standard Deduction.
• The Standard Deduction jumped to $12,200 for individuals and $24,400 for married couples filing jointly. (For 65 and over, $13,500 for individuals and $27,000 for couples filing jointly.)
• Many people might not realize the combined impact of the state and local tax limitation of miscellaneous itemized deductions on their ability to itemize.
• Unless a person has a significant mortgage deduction or huge medical expenses, they will probably be using the Standard Deduction AND their charitable contributions may not be a deductible issue anymore.
Here are some ideas to consider, and these possible tax-saving ideas may be just another reason to have a wise and pro-active advisor:
I. Using "Bunching Deductions":
• A person can donate to charities in ONE calendar year a "bunched up amount".
• Instead of a person giving to their favorite charity every year, they might give 3 times or 4 times their normal amount representing the next 3-4 years of giving. This would allow all 3 or 4 years' worth of giving to be deducted in one year --- called "bunching".
• Example: If one normally wished to give $10,000 to a charity in one year, they could choose to give $40,000 in 2019 and the charity would realize 4 years of giving in one year. The donor could then realize the $40,000 deduction for 2019 by "itemizing" and then simply use the Standard Deduction route for years 2020, 2021, and 2022.
II. Using "Donor-Advised" funds:
• Here is how this could work. A person could properly open a Donor Advised fund and deposit a rather large amount in the fund. In the year of that deposit (example: $40,000), the donor would be able to take the deduction as explained above under "bunching". Then, the donor could fund whatever qualified charity or charities he chose over a period of years. This simply allows the donor to give to more than one charity under the concept of Bunching.
III. Using the new QCD: Qualified Charitable Deduction
• This is a fairly new concept offered to persons who have IRAs and are now in the 70.5 age group and are required to withdraw each year from their IRA(s).
• This is like a substitute for taking a Required Minimum Distribution from an IRA account.
A. The "required amount" must still be removed from the IRA. However, when a RMD is received by the IRA owner, the distribution is 100% taxable and therefore added to the total taxable income of the owner. This additional income, as many people see it, might not be needed for income – it's quite possible that the IRA owner has plenty of other income and therefore the IRA distribution is seen as a problem – tax wise.
B. IF the IRA owner is already a charitable person and ordinarily gives to her favorite charity (or charities) each year, the QCD might be a great idea for Tax Savings.
C. ALSO, if the person wishes to donate to charity and goes the route of receiving the RMD, then paying taxes, and then giving to the charity, this additional RMD "income" could move the person to a higher tax bracket and therefore pay taxes when this could be avoided.
• The QCD guidelines allows a person to inform the IRA custodian to make a check payable to the charity directly for any amount ($100,000 limitation; normally the RMD amount OR amounts which would equal the RMD). If done correctly, this amount will be recognized by the IRS as satisfying the RMD --- and the money then comes out WITHOUT taxes and goes directly to the charity.
A. The amount distributed is NOT recorded as income to the IRA owner
B. The RMD is NOT added to the taxable income for the year and therefore might indeed save "bumping up" into a higher tax bracket.
C. This technique might also save a "bump up" on the Medicare bracket cost grid.
a. When the taxable income moves over certain Medicare bracket limits, the person must pay higher premiums on their Part B Medicare the whole next year.
b. When taxable income exceeds a certain amount, the Part B Medicare costs could increase as much as $100+ or $200 per month. (Let's see: 12 x $200/mo = $2,400/year)
A client recently asked me: "What is the smart money doing right now?" Most people understand that phrase – "smart money". Well, what about "Smart Taxes"? There very possibly is smart money to be saved by talking to someone about Smart Tax strategies. There are other tax strategies to be discussed – and some savings to be enjoyed now will go away after December 31, 2025! Inquire now about it – you might like the answer.
Some people may not sense their need of a "specialist" until they're too deep in the muck of complexity before they realize that a true "specialist" could have helped their family much more efficiently! Others sense that the world has become quite complicated and are aware of their need of this specialist.
With life getting more complicated and planning for future sufficiency more complex, I would agree that a "specialist", rather than a "generalist", is the better choice of advisor.
In any and every arena of life, be it the medical field, the complex tax field, or the lifestyle/legacy financial field, a true specialist has some distinguishing features.