Here We Go Again

For the second year in a row, the status of tax-free transfers from IRAs to charities is in doubt.  Late in 2014, Congress retroactively renewed legislation permitting IRA owners age 70½ and older to make gifts up to $100,000 directly to charities – but only for 2014.  It is expected that legislation will be introduced in 2015 to renew qualified charitable distributions for 2015 – and possibly even make the law permanent.

Should you make a 2015 gift from your IRA early in the year or wait until legislation has passed?  There’s little downside to having your IRA custodian send a check directly to charity, provided you normally itemize your income tax deductions.  You should also limit your gift to the amount of your 2015 required minimum distribution (you can always make a second gift later).  If the IRA legislation is renewed later in 2015, gifts made earlier in the year will qualify for tax-free treatment.  If the law is not extended, you’ll owe the tax you would normally owe on a distribution, but you’ll be entitled to an income tax charitable deduction.

Check with your financial adviser about making your gifts early in 2015.  Call us if you have questions about the status of the law.  And please notify us if you plan to make a gift from your IRA so that we may provide the proper substantiation.


Gift Ideas for Early in the Year

Transferring income-producing assets from someone in a high tax bracket to a recipient in a low bracket may save income taxes.  And the earlier in the year you make your gifts, the more income you can remove from next year’s tax return.  Consider doing the following:

  • Take advantage of the $14,000 annual gift tax exclusion ($28,000 for spouses), by making gifts to family members.
  • Pay medical expenses or school tuition for family members, in addition to the annual exclusion.  Payments must be made directly to the health care provider or school.
  • Accelerate bequests to family members by combining them with future gifts to charity.  For example, you can create a trust now that pays income for life to a family member and then passes the assets to charity.  You’ll receive an income tax charitable deduction and shift income to younger family members.


Weathering the Ups and Downs

Recent fluctuations in the stock market may be a signal to re-evaluate your portfolio.  A steep rise (or drop) in stock prices may mean it’s time to sell and reinvest the proceeds in order to maintain the desired balance in your portfolio.  But before realigning your investments, check with your financial and tax advisers on how a sale and reinvestment will affect your overall financial picture.

The sale of stock or mutual fund shares for a profit will produce capital gain and be taxed as shown in the chart.

Holding period

Character of gain

Top tax rate

One year or less

Short-term

Taxpayer’s highest income tax rate, up to 39.6%

More than one year

Long-term

Zero for taxpayers in the 10% and 15% brackets

 

 

15% for taxpayers in the 25%, 28%, 33% and 35% brackets

20% for taxpayers in the 39.6% bracket

If shares are sold at a loss, the capital loss can be used to offset capital gains and up to $3,000 of other income.

There’s one other option for appreciated stock and mutual fund shares: Use them to make your charitable gifts, but keep in mind several important rules:

  • The deduction for gifts of short-term capital gain property is limited to basis.
  • The deduction for gifts of long-term capital gain property is the fair market value – and you avoid the tax on the capital gain.
  • Capital loss stock should be sold and the proceeds contributed to charity, giving two deductions – one for the capital loss and one for the charitable gift.
  • You can use long-term capital gain shares to fund a charitable remainder trust or charitable gift annuity, reserving payments for life from your gift while avoiding the immediate capital gains tax.  You’ll also receive a charitable deduction.


Make 2015 the Year to Save

The maximum amount that can be contributed to 401(k) plans has increased, from $17,500 in 2014 to $18,000 in 2015.  In addition, those ages 50 and older can make catch-up contributions of up to $6,000 (up from $5,500 in 2014).  While not everyone is able to save the maximum, it’s important to contribute at least enough to take advantage of any employer match.

For those not covered by 401(k) plans or whose income is below certain levels (starting at $61,000 of modified adjusted gross income for single taxpayers and heads of households, $96,000 for married couples) the contribution limit for IRAs remains at $5,500 for 2015.  The catch-up contribution, which is not subject to cost-of-living adjustments, is $1,000.

Want to save more?  Consider a series of deferred charitable gift annuities, timed to begin payments at some future date.  You’ll receive a charitable deduction now and augment your retirement income.  And unlike an IRA contribution, you can fund the gift annuity with appreciated property, saving on capital gains tax.


Got New Stuff? Review Your Insurance

That flat screen TV that you bought on Black Friday, the diamond bracelet Grandma recently gave you or the new computer you just bought for your son in high school – these are all items that may not be covered on your homeowner’s insurance policy.  One of your new year’s resolutions should be to review your existing insurance – life, home, car, long-term care, disability, umbrella – to see that the coverage is appropriate.  You may need a rider to cover some items, or you may discover that some coverage you currently have is no longer needed.

If you find a life insurance policy that is no longer needed for your family’s financial security, consider making charity the owner and beneficiary.  You’ll be entitled to an income tax deduction.

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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.