If you are charitably inclined, what is the most tax efficient way to give to those charities?
Let us start with standard deduction versus itemized deductions. Your itemized deductions must exceed your standard deduction for any tax benefit. There is a caveat for 2021, cash donations up to $300 for single filers and $600 for Married Filing Joint are allowed as above the line deductions.
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Wow, I cannot believe it is November already. This means the winter holidays are approaching, cooler weather is coming and so is the end of the tax year. Following is a list of items to consider when wrapping up the year:
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According to the Forbes article, “The Four Things Women Want (in Financial Services),” women want the following: – more confidence with their finances, more convenience, better communication, and better collaboration.
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Tax planning is considering your whole situation and making any necessary changes or decisions before the tax year is complete. Think of it as forward looking. When you prepare your tax return, you are looking backwards at things that have already happened and figuring out any credits or deductions that you can take based on things you cannot change.
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Many of our clients don’t know what probate is, and that isn’t necessarily a bad thing. If you’ve never had a loved one die, you may never have experienced it. Probate is the legal process by which a will is validated. If there’s no will, it’s the legal process of settling a person’s affairs. In other words, if you didn’t write your own will, the state has one for you.
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There are several misconceptions about estate planning. For instance, many people think you need to be ultra-wealthy to create one, or that they are only relevant to parents with young kids and senior citizens.
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A Financial Plan is a look at your current financial health and a map to help you reach your goals. It looks at income, expenses, assets, and debt. If you keep all four of these in balance, you should have enough money to invest in a way that matches your risk tolerance. A well-designed plan puts you on track to reach your goals.
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As you may know, the Secure Act put an end to the Stretch IRA. The stretch IRA is the ability to stretch the IRA distributions over the beneficiaries’ lifetime. Let us look at the new rules to see how this may impact your current situation.
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You’ve probably heard of fee-only financial advisors. But what does this mean? When you invest with a fee only advisor, you can be confident that your best interests are their priority because there’s no incentive to push products or services just to make money.
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With interest rates so low, many people are taking advantage of this time and buying new homes so that they can lock in a low mortgage rate for 30 years. The advantage to locking in a low interest rate when purchasing (or refinancing) is that the principal and interest is fixed. You may have seen a notice each year from your mortgage company increasing your monthly payment slightly. This is because your total mortgage payment is made up of PITI—Principal, Interest, Taxes, and Insurance. Generally, your property taxes and your home insurance costs go up a little each year. The majority of your monthly payment is tied to your principal and interest which is why it is a good idea to lock that interest rate portion in as low as you can.
With the increase in housing prices this past year, many people are capitalizing on this and selling their homes. If you have a large gain on your home, it is possible that you may owe capital gains taxes. Many years ago, the rule was that if you used the sale proceeds from your primary residence to purchase another primary residence, then you did not owe any capital gains tax. The current rule with proceeds from the sale of your primary residence has limitations. First, you must have lived in the home for at least 2 out of the last 5 years. If this applies, then you can exclude $250,000 from capitals gains tax if you are filing single or $500,000 if you are married filing joint. These are large numbers but depending on how long you have lived in your home and where you are located, you may still have a taxable gain on your property. If you have ever rented your property, you have other rules with depreciation recapture to consider as well.
If you think you may be above the excludable limits, then you should look at all your costs to make sure you are including everything allowable in that gain calculation. How do you do that? Start with your cost basis. Your cost basis is the purchase price of your home plus any costs associated with that purchase, such as certain closing costs—title fees, legal fees, recording fees, surveys, transfer taxes and title insurance. Then add to your cost basis any improvements you made to your home. Improvements add value to the property or adapt it to new uses. Some improvements are adding rooms, putting in a new system, adding a roof, etc. What is not included in your cost basis are repairs. Check out Publication 523 on the irs.gov site for more guidance with improvements versus repairs.
Your sales price is the selling price less fees paid to sell it (including real estate commissions and fees associated with selling).
If have a gain in excess of the $250K/$500K limits, then you may have to pay capital gains taxes.
Also, note that sometimes your gain or loss is reported on a 1099-S Form for tax purposes. This form, like other 1099’s, is sent to the IRS. So, if you did not report the sale along with your costs, you could receive a bill from the IRS. Do not panic, often times it is just a reporting issue. Make sure you go back to your tax return to see if you have a Form 8949. If you do not, you may have to complete that form, or it could just be a response to the IRS letter you receive.
This was a lot of information but can be an important factor in your Financial Plan. If you have any questions or need assistance with your financial life and goals, schedule an appointment with us today—this is what we do!
Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.