As the year comes to a close, we wanted to make you aware of a few steps you can take now to save taxes and/or penalties for 2015:
Maximize Your Charitable Donations Deduction
If you are thinking of giving to charity during this holiday season, make sure you know the rules so that the deduction will be allowed:
- You can only deduct gifts you’ve given to qualified charities, so if you are unsure if the group is qualified, you can call our office or check the list on the IRS website.
- You must have a bank record or a written statement from the charity which shows the name of the organization and the date of the contribution. Bank records will suffice for gifts up to $250. For gifts over $250, you should have a written statement from the organization with all of the above information as well as the value of any goods or services received in exchange for the gift (or that no goods or services were received).
- If you give property instead of cash, the deduction is usually that item’s fair market value. The items must be in good condition. If the item is $5,000 or more, an appraisal is required. Special rules apply when vehicles are donated.
- You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year, it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.
Take Advantage of a Donor-Advised Fund
Another charitable giving approach you might want to consider is the donor-advised fund. These funds essentially allow you to obtain an immediate tax deduction for setting aside funds that will be used for future charitable donations.
With donor-advised funds, which are available through a number of major mutual fund companies, as well as universities and community foundations, you contribute money or securities to an account established in your name. You then choose among investment options and, on your own timetable, recommend grants to charities of your choice.
The minimum for establishing a donor-advised fund is often $10,000 or more. These funds can make sense if you want to obtain a tax deduction now but take your time in determining or making payments to the recipient charity or charities. These funds can also be a way to establish a family philanthropic legacy without incurring the administrative costs and headaches of establishing a private foundation.
Take Advantage of the Annual Gift Tax Exclusion
The 2016 annually adjusted amount for the unified gift and estate tax exemption has been increased to $5.45 million which is up from $5.43 million in 2015. But even with the rising exemptions, annual exclusion gifts offer a valuable tax-saving opportunity.
The 2015 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free without using any of your gift and estate tax exemption. (The exclusion remains the same for 2016.)
The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.
You need to use your 2015 exclusion by December 31. The exclusion doesn’t carry over from year-to-year. The donee must receive the gift (deposit the check) on or before December 31.
Be Sure to Take Your Required Minimum Distribution for 2015 to Avoid Penalties
After you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs). Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.
If you turned age 70½ in 2015, you can delay your 2015 required distribution until April 1, 2016. Think twice before doing so, though, as this will result in two distributions in 2016 — the amount required for 2015 plus the amount required for 2016. This might throw you into a higher tax bracket and trigger the 3.8% net investment income tax return.
If you need to take your required minimum distribution and you would like to make a charitable contribution, you can have your distribution sent directly to your qualified charity.
Is it Time to Sell that Stock?
If you have capital losses carried forward and want to take advantage of selling stock at a gain to utilize these losses, now is the time. Also, if you have large capital gains, you may want to harvest some losses to offset those gains.
Not really a tax planning idea, but something to always keep in mind… beware of anyone trying to get your personal information. The IRS does not call or e-mail asking for personal information.
If you have any questions please contact your Alerding CPA Group tax advisor or visit our website: www.alerdingcpagroup.com.