Year-end is often the most opportune time to consider financial and tax planning strategies. As this article is being written, Congress and the White House are negotiating significant changes in the tax laws that could, if enacted, impact financial strategies and tactics. This makes it more important than ever to meet with advisors to review your investment portfolio and consider tax, financial, and charitable giving strategies before December 31. Things may become clearer as year-end approaches, but this will require you to be flexible and prepared to act in a short timeframe. It appears that most changes in the tax code would be effective after the start of 2018.
Tried and true year-end tax strategies generally revolve around shifting some tax burden to a future year. Deferring receipt of a bonus payment to 2018, accelerating deductions into this year by prepaying a deductible expense, or making larger charitable gifts all can lower this year’s tax bill. Keep in mind however, that you may need to factor in the application of the alternative minimum tax (“AMT”) to determine if shifting income and deduction strategies provide maximum savings in your financial situation.
Comprehensive tax reform is expected to repeal the AMT for future years, but it will most likely remain in place for 2017 and would need to be addressed in your calculations. And if tax reform cuts back or eliminates other deductible items such as state and local income tax or property taxes, it may make sense to consider accelerating the payment of these items after factoring in the application of the AMT.
Keep in mind that for those who itemize their deductions, gifts of cash to public charities such as the Tidewater Jewish Foundation are fully deductible, up to 50 percent of adjusted gross income (AGI). Any excess can be carried forward and could be deductible for up to five years. Tax reform could increase this AGI limitation for cash gifts to 60 percent starting in 2018.
With the stock market at an all-time high, this year-end is an opportune time to review your investment portfolio and consider timing the recognition of capital gains and losses for assets held long-term (more than one year) and shortterm. Under most tax reform plans, it appears that most capital gains sales will remain “tax advantaged” with a top rate of approximately 24 percent. Part of your capital asset review could be consideration of a gift of appreciated securities to charities. For example, you can avoid paying capital gains tax on the value of securities transferred to TJF and may be able to receive a charitable deduction for the full fair market value of the securities at the time of the gift.
Remember that gifts of appreciated assets are fully deductible up to 30 percent of adjusted gross income. Again, any excess can generally be carried forward and be deductible for up to five years.
Donating appreciated stock, either to create a donor-advised fund (“DAF”) at TJF, or adding such securities to an existing DAF in 2017, is an excellent way to maximize tax saving from such gifts, as well as provide a vehicle from which you can make recommendations for future charitable grants. Currently, TJF offers a program where it adds $2,500 to a new DAF of at least $7,500, increasing the amount of future grants you can recommend.
Estate Taxes and Lifetime Giving
It is expected that any comprehensive tax reform plan will make significant changes (including potential repeal) to the estate tax, the generation-skipping transfer tax, and perhaps the gift tax. Such changes, if enacted, could dictate modifications to estate and bequest planning, as well as lifetime gifting strategies. Again, keep a close eye on Washington to see how tax reform could impact your current estate plan.
TJF professionals remain available to work with you and your other professional advisors to maximize the benefits of these and other tax planning strategies for you and the Jewish community.
For more information, contact Scott Kaplan, president and CEO of Tidewater Jewish Foundation at 757-965-6109.
This article is for informational purposes only and should not be construed as legal, tax, or financial advice. When considering gift planning strategies, always consult with your own legal and tax advisors.
– Scott Kaplan, president & CEO, Tidewater Jewish Foundation