Estate Planning

What the One Big Beautiful Bill Act Could Mean for You

Financial Planning, News, Tax Planning, Women and Money / /
One Big Beautiful Bill Act

On July 4, President Donald Trump signed a sweeping new tax and spending bill, the One Big Beautiful Bill Act (OBBBA), into law. At nearly 900 pages long, it’s one of the most ambitious policy packages of his presidency.

The bill includes roughly $4.5 trillion in tax cuts, major changes to federal spending, and significant investments in border security and defense.

Supporters see it as a continuation of Trump-era tax relief and a bold move to bolster national security. Critics, however, point to its steep cuts to safety net programs and the potential $3.3 trillion increase to the federal deficit over the next decade.

The bill’s provisions are likely to affect individuals, families, and businesses across the country. Here’s a closer look at what’s inside and how it could impact you.

One Big Beautiful Bill Act: Key Tax Provisions

Tax Rates and Brackets Made Permanent

The tax brackets introduced by the 2017 Tax Cuts and Jobs Act (TCJA) were originally scheduled to expire in 2025. The OBBBA makes these lower tax rates permanent, keeping the 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets in place indefinitely (or until changed by future legislation).

Standard Deduction Increases Under the One Big Beautiful Bill Act

The standard deduction amounts, which the TCJA nearly doubled, are now permanent and slightly higher for 2025:

  • Single Filers: $15,750
  • Married Filing Jointly: $31,500

Additional standard deductions for those 65+ also remain, increasing annually with inflation.

New $6,000 Deduction for Older Adults

People 65 and older may qualify for an additional $6,000 personal exemption between 2025–2028. However, this benefit phases out:

  • For single filers, the deduction begins to phase out at $75,000 and goes away completely by $175,000 MAGI.
  • For joint filers, it phases out between $150,000–$250,000 MAGI.

SALT Deduction Temporarily Expanded

From 2025 to 2029, the State and Local Tax (SALT) deduction cap increases from $10,000 to $40,000, with a phaseout beginning at $500,000 MAGI. The base cap of $10,000 becomes permanent starting in 2030.

New Deductions for Workers

Temporary tax breaks from 2025 through 2028 include:

  • Up to $25,000 of tip income excluded from federal income tax (phased out starting at $150,000 MAGI for singles, $300,000 for couples).
  • Up to $12,500 of overtime pay excluded for individual filers, and up to $25,000 for joint filers (same income thresholds as above).
  • Up to $10,000 of auto loan interest is deductible if the car is U.S.-assembled and the loan originated after 2025 (phased out for singles earning over $150,000, couples over $250,000).

Changes for Retirees and Estate Planning in the One Big Beautiful Bill Act

Social Security Still Taxable

Despite some confusion, the One Big Beautiful Bill Act does not change Social Security taxation. However, with expanded standard deductions and senior-specific exemptions, more retirees may see lower overall taxable income.

ACA Credits Not Extended

Enhanced Affordable Care Act (ACA) premium tax credits—originally introduced during the pandemic—are set to expire at the end of 2025.

Beginning in 2026, income eligibility rules will revert to pre-2021 levels, meaning many households that previously qualified for subsidies may no longer be eligible. According to an analysis from KFF, the average enrollee could see their premiums rise by 75%, making health insurance substantially less affordable for millions of Americans.

However, starting in 2026, all bronze and catastrophic plans purchased on the ACA exchange will qualify the policyholder to contribute to a Health Savings Account (HSA), which could offer a new tax-advantaged savings opportunity for early retirees.

Estate and Gift Tax Exemption Increases

The current estate and gift tax exemption of $13.99 million per person will increase to $15 million in 2026 and remain indexed to inflation going forward. This makes long-term legacy and gifting strategies even more important for high-net-worth families.

Charitable Giving Rules Adjusted

Beginning in 2026, if you don’t itemize deductions, you’ll be able to claim a charitable deduction of:

  • $1,000 (single filers)
  • $2,000 (joint filers)
    Note: Applies regardless of income, but donations to donor-advised funds are not eligible for this deduction.

For itemizers, donations must now exceed 0.5% of AGI before becoming deductible. For example, if your AGI is $100,000, only donations above $500 will count toward your itemized deduction.

Clean Energy Rollbacks

Several clean energy provisions from the 2022 Inflation Reduction Act are rolling back:

  • EV tax credits will end after September 30, 2025.
  • Home energy efficiency upgrades and clean residential energy systems (like solar or geothermal) must be installed by December 31, 2025 to qualify for tax credits.
  • New tax credits are now available for metallurgical coal, a move critics argue slows the transition to greener energy.

Introducing “Trump Accounts” for Children

Starting in 2026, new savings accounts will be available for children under 18. Key details include:

  • Named “Trump Accounts,” these operate similarly to Roth IRAs.
  • Annual contributions are capped at $5,000, with no upfront tax benefit.
  • The federal government will contribute $1,000/year to accounts for children born between 2025–2028.
  • Investment options are limited to low-cost index ETFs or mutual funds.

These accounts are designed to encourage early saving, but the complexity of distribution rules and limited utility for most taxpayers means it may take time to understand how widely they’ll be used.

One Big Beautiful Bill Act: The Bottom Line

The One Big Beautiful Bill Act brings sweeping changes to the tax code, health care system, and energy policy. While the full long-term effects are still unfolding, many provisions should deliver short-term savings, particularly for older adults, working families, and small business owners.

That said, the impact will look different for everyone depending on your income, age, and filing status. If you’re unsure how these changes could affect your tax bill, retirement strategy, or estate plan, now is a great time to revisit your financial plan. We’re here to help you cut through the complexity, make informed decisions, and plan confidently for what’s ahead.

Explore our free resources for helpful tips, tools, and educational content to support your financial journey.

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Pretty Soon, It’ll Be Tax Time: Are You Ready?

Estate Planning, Tax Planning, Women and Money / /
Tax Season

As tax season approaches, it’s almost time for that annual ritual: gathering your W-2, 1099s, and other financial documents. Your accountant will send their trusty checklist—or maybe you’ll take on the task yourself, cramming like it is finals week to beat the deadline.

Or perhaps you’ll file an extension, hoping for a bit more breathing room. (A reminder: filing an extension doesn’t extend the deadline to pay tax. You must make an estimated payment by April 15 and then true it up when you officially file).  Some of us might miss the deadline entirely—something I highly recommend avoiding.

When I was single, I always filed my taxes on time. It felt like a huge weight lifted from my shoulders.

But after I got married, my husband took over tax prep, and suddenly, we were always filing extensions. It drove me crazy! These days, we have an accountant, and yes, they often file extensions too. It turns out there are valid reasons for this:

Reasons for Filing an Extension

  • Late K-1s: If you own alternative investments or receive trust income, you’ll need a Schedule K-1. These forms are notorious for being issued late, delaying your entire return.
  • Missing Information: Sometimes, clients don’t get all their documents to the accountant in time. (Guilty as charged?)
  • Overwhelmed Accountants: Some accountants take on too many clients and use extensions as a way to manage the workload.

If I were an accountant, I’d try to get everything done by April 15 just so I could take a long, well-earned vacation!

Unfortunately, there are consequences for not filing taxes on time…(by the way, filing an extension is a completely legitimate way to get more time to do your taxes, and it will not trigger an audit as many think. It is much better to file an extension than to do nothing and file late!

Not filing your taxes on time or failing to file altogether can lead to significant penalties and headaches. Here’s a quick rundown:

IRS Penalties

  • Failure-to-File Penalty: The IRS charges 5% of the unpaid taxes for each month (or part of a month) your return is late, up to 25% of your unpaid taxes.
  • Failure-to-Pay Penalty: If you don’t pay your taxes on time, you’ll be charged 0.5% of your unpaid taxes each month, up to 25%.
  • Interest Charges: The IRS also charges interest on unpaid taxes, which accrues daily from the original due date of your return.

Example: Suppose you owe $10,000 and don’t file or pay anything for three months. When you finally file, the interest and penalties would add an additional $1,850.00 to your tax bill.

The IRS penalties don’t stop there. Here are a few lesser-known reasons to stay on top of your tax obligations:

Beware of These Red Flags This Tax Season

  1. Solo 401(k) Filing Requirements: If you’re self-employed and have a Solo 401(k) with more than $250,000, you must file Form 5500 by July 31 or be subject to a $250-per-day penalty until you file. If this seems onerous, it is—the penalties were designed primarily to enforce compliance for large employer-sponsored retirement plans and prevent employers from mismanaging employee retirement funds. Unfortunately, Solo 401(k)s fall under the same penalty structure, even though they don’t pose the same risks.
  2. State Tax Nexus Issues: Working remotely or in multiple states might mean owing taxes in more than one state. Failing to file the correct state returns can lead to penalties and interest.
  3. Capital Gains Misreporting: Forgetting to report stock sales or underestimating the basis of your investments can trigger an IRS audit or unexpected tax bills.
  4. Health Savings Account (HSA) Mistakes: Overcontributing to an HSA or using HSA funds for non-qualified expenses can result in taxes and penalties.
  5. Gift Tax Filings: If you give someone more than $19,000 in a year (as of 2025), you need to file a gift tax return (Form 709), even if no taxes are due. Missing this step can complicate estate planning down the line.
  6. Failure to Report Cryptocurrency Transactions: The IRS is cracking down on unreported cryptocurrency gains. If you’ve traded or sold crypto, you must report it on your tax return.
  7. If you inherited an IRA and don’t take the correct distributions, the IRS imposes a 25% excise tax. They lower the excise tax if you correct the mistake within a correction window.
  8. IRA Rollovers: If you need cash for a short period of time and tap your IRA for it, there is no problem as long as you redeposit the money back into the IRA within 60 days. However, you can only do this once within a 12-month period. If you do more, the full amount is taxable; if you are under age 59 ½, there is also a 10% penalty.

Make Tax Season Work for You

Instead of scrambling at the last minute or risking penalties, consider these steps to make tax season easier:

  • Start Early: Gather your documents as soon as they’re available and set aside time to review them.
  • Work with a Professional: A CPA, Enrolled Agent, or financial advisor can help you navigate complex situations and minimize your tax burden.
  • Double-Check Everything: Avoid errors by reviewing your return carefully before filing.

Tax season may not be fun, but it’s a lot easier when you stay ahead of the deadlines and know the rules. Filing on time, avoiding penalties, and understanding your options can save you time, money, and stress. And isn’t that worth it?

For more financial planning tips and best practices, check out our free resources page.

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Estate Planning Considerations Ahead of Potential TCJA Expirations

Estate Planning, Financial Planning, Tax Planning, Women and Money / /

The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to estate planning, notably increasing exemptions for estate, gift, and generation-skipping transfer taxes. These changes have provided high-net-worth individuals and families with greater opportunities to transfer wealth to their beneficiaries while mitigating taxes.

However, with key provisions of the TCJA set to expire in 2025, it may be time to revisit your estate plan. Even if your portfolio is way below the exemption amounts (below), compounding returns are a powerful wealth builder, and your future values could quite possibly reach and exceed the limits.

 It must be noted though, that Congress will debate the expiration of these tax provisions, and we do not know the outcome yet.

Key Tax Changes Under the TCJA of 2017

The Tax Cuts and Jobs Act (TCJA) of 2017 meaningfully reshaped the tax landscape, offering wealthy individuals and families a way to pass more assets to beneficiaries tax-free. Key legislative changes included:

It’s important to note that these TCJA estate planning provisions are set to expire at the end of 2025 unless Congress votes to extend them. Depending on your individual circumstances, taking advantage of the current high limits, you can potentially preserve more of your estate from tax.

Estate Planning Strategies to Be Aware Of

With the expiration of the TCJA approaching, now is an opportune time to explore strategies that align with your values and long-term goals.

#1: Lifetime Gifting

To make the most of the current elevated exemptions before the Tax Cuts and Jobs Act (TCJA) expires, several gifting strategies can help transfer wealth efficiently while minimizing tax burdens:

  • Creating Irrevocable Trusts. By transferring assets into an irrevocable trust, you effectively remove them from your taxable estate, which helps shield them from estate taxes when the TCJA exemptions potentially decrease in 2026. Additionally, you can structure an irrevocable trust to retain control over how and when beneficiaries access the assets, providing peace of mind that they’ll use your wealth according to your wishes. Keep in mind that irrevocable means that once the trust is executed, it cannot be changed.
  • Direct Payment of Medical or Educational Expenses. Payments made directly to medical institutions or schools aren’t subject to the annual gift tax exclusion or the lifetime exemption, meaning they don’t count against your gifting limits. This is a tax-efficient way to provide significant financial support to your loved ones without reducing your lifetime exemption, and it allows you to give in a meaningful way without adding to their taxable income.
  • Transferring Appreciating Assets. Another key strategy is to transfer appreciating assets, such as stocks, real estate, or business interests, while their value is still growing. By gifting these assets before they appreciate further, you can reduce your taxable estate while allowing the recipient to benefit from future growth.

Each of these approaches offers unique advantages and can be tailored to fit your financial goals and family’s needs.

#2: Dynasty Trusts

If you have grandchildren or great-grandchildren, advanced estate planning strategies like dynasty trusts can be highly effective for preserving wealth across multiple generations.

A dynasty trust is a long-term trust that enables the transfer of wealth from one generation to the next, often over several decades or even centuries. This type of trust not only helps protect your legacy but also shields the assets from potential risks such as creditors, lawsuits, and divorces, ensuring your family’s financial security for years to come.

You can also structure the trust in a way that minimizes or eliminates estate taxes, gift taxes, and generation-skipping transfer (GST) taxes, allowing your family to benefit from the full value of the assets you’ve transferred. By establishing the trust while the current elevated exemptions are in place, you can lock in these favorable tax treatments before the TCJA provisions expire in 2026.

#3: Grantor Retained Annuity Trusts (GRATs)

For those seeking more sophisticated estate planning strategies, Grantor Retained Annuity Trusts (GRATs) can be an effective tool for transferring future appreciation of assets in a tax-efficient manner ahead of potential TCJA expirations.

A GRAT allows you to place high-growth assets, such as stocks or real estate, into a trust while retaining the right to receive fixed annuity payments over a specified term. The key benefit is that any appreciation in the assets above the IRS’s assumed growth rate passes to your beneficiaries tax-free at the end of the trust’s term.

This strategy works particularly well in a low-interest-rate environment, where the hurdle rate is low, allowing more of the appreciation to avoid gift taxes. Since the grantor retains the annuity payments, the initial gift value is minimal, often resulting in little or no taxable gift.

#4: Charitable Lead Trusts (CLTs)

Charitable Lead Trusts (CLTs) offer a unique way to support charitable causes while also benefiting your heirs in a tax-efficient manner.

In a CLT, you transfer assets to the trust, which then provides regular payments to a charity of your choice for a specified period. After this term ends, the remaining assets in the trust pass to your heirs, often with little or no gift or estate tax.

This strategy not only enables you to make a meaningful impact on the causes you care about, but it also helps reduce the taxable value of your estate. Because the value of the charitable payments is deducted from the overall gift, the remaining value that eventually goes to your heirs can be significantly discounted for tax purposes.

#5: Family Limited Partnerships (FLPs)

Family Limited Partnerships (FLPs) can be a powerful estate planning tool ahead of potential TCJA expirations.

An FLP allows you to transfer ownership of assets, such as real estate, investments, or a family business, to a partnership structure. Typically, senior family members (parents or grandparents) act as general partners, maintaining control over the management of the assets, while younger family members become limited partners with ownership interest but without decision-making authority.

The primary benefit of an FLP is the ability to transfer wealth to heirs at a discounted value. Because limited partners lack control and marketability, the IRS often allows a discount on the value of the partnership interests for gift and estate tax purposes, effectively reducing the taxable value of the transferred assets.

FLPs also offer the added benefit of asset protection, as creditors may find it difficult to access assets held within the partnership. This structure helps ensure long-term wealth management and continuity within families.

Estate Planning and the TCJA: Recommitting to Your Plan

Estate planning is never a one-size-fits-all solution. The most effective strategies are those tailored to your unique circumstances, financial goals, and family dynamics. A thoughtful estate plan strikes a delicate balance between tax efficiency, asset protection, and—most importantly—caring for the people and causes that matter most to you.

Regularly revisiting and updating your plan ensures that it evolves with changes in your life, such as new financial situations, family additions, or shifting priorities. By engaging in open discussions with your family and trusted advisors, you can craft a plan that truly reflects your values and ensures your legacy endures for generations.

For more financial planning tips and best practices, check out our free resources page.

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S5E8: Leaving a Legacy of Love with Professional Fiduciary Sara Ecklein

Financial Finesse Podcast / /
Professional Fiduciary

Exploring the Role of a Private, Professional Fiduciary

My guest today is Sara Ecklein, a private professional fiduciary and the founder of Trust and Honor. Sara and I explore the intricacies of her role, from acting as a trustee, executor, or agent under various legal capacities, to the benefits of having a neutral party manage sensitive family and financial issues.

We also discuss the importance of proactive estate planning, especially for solo agers and blended families, and the peace of mind it offers. Finally, Sara shares success stories that highlight her impact as a fiduciary and the importance of a well-prepared estate plan, as well as the launch of her upcoming podcast, The Legacy of Love, which aims to make estate planning more approachable and less daunting.

Episode Highlights

  • [02:48] The role of a professional fiduciary.
  • [08:22] Common estate planning challenges.
  • [11:01] The importance of trust and neutrality in estate management.
  • [16:02] How to hire a professional fiduciary.
  • [23:09] The role of a trustee and power of attorney.
  • [25:05] Healthcare decision-making and client relationships.
  • [36:40] Introducing the Legacy of Love Podcast.

Links Relevant to this Episode

Sara’s Website: Trust and Honor

The Legacy of Love Podcast

Financial Finesse S4E6: The Unexpected Benefits of Working with a Private, Professional Fiduciary with Sara Ecklein

Enjoy the Full Episode

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S5E6: The Art of Equitable Estate Distribution with Estate Organizer Meg Connell

Financial Finesse Podcast / /
Estate Organizer Meg Connell

Professional Estate Organizer Meg Connell Shares Her Invaluable Insights

Meg Connell is the founder of The Organized One, a professional estate organizer based in Oakland, California focused on helping individuals, particularly single women and widows, navigate the challenging process of estate distribution. Transitioning from a background in interior design to a role deeply immersed in organizational tasks, Meg realized the need for compassionate and equitable estate distribution services after contemplating her own family’s future dynamics.

And Meg’s journey is indeed a fascinating one. She’s a specialist who understands the complexities of dealing with possessions, fair distribution, and the importance of respecting the wishes of the deceased. Her work, often at the intersection of grief and legality, involves collaboration with attorneys, trust officers, and financial planners, all while managing the emotional tenor of her clientele.

In this episode, we peel back the layers of estate organization—a topic that can seem daunting at first but is crucial for ensuring peace of mind and fairness. Furthermore, we delve into how Meg assists clients in making tough decisions and the strategies she employs when the division of items isn’t crystal clear.

We also explore the human side of her business, as she shares her approach to handling situations where emotions run high, and the importance of being sensitive to the grief process. Indeed, Meg’s extensive experience and the comprehensive nature of her services provide a guidepost for anyone facing the prospect of estate organization, whether for themselves or a loved one.

This episode is packed with advice, empathy, and a clear-eyed look at dealing with life’s inevitables. I’m certain you’ll take away some invaluable insights into the world of estate organization. With that, I hope you enjoy this episode of Financial Finesse with professional estate organizer Meg Connell.

Episode Highlights

  • [03:33] Meg’s journey into estate organization.
  • [08:59] Practical strategies for estate distribution.
  • [13:43] Exploring the human side of estate organization.
  • [18:38] The role of estate planning in estate organization.
  • [31:22] Meg’s team-based approach at The Organized One.
  • [54:08] How single women can prepare their estates to streamline the process for their heirs.

Links Relevant to this Episode

The Organized One Official Website

Gold & Silver Melters:

Oakland Silver & Gold

Bay Area Gold & Silver Buyers

Repurposing Gold & Silver:

Bay Jewelers

Ben Shemano Jewelry

Enjoy the Full Episode

Subscribe on Apple Podcasts

Do you love Financial Finesse? Please leave us a review on Apple Podcasts!

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Charitable Giving, Part 4: Tax-Smart Ways to Give to Charity (Part 2)

Charitable Giving, Estate Planning, Philanthropy, Tax Planning / /
Tax Efficient Giving Strategies

In my last article, I shared a few charitable giving strategies that can help you be your generous self while at the same time being tax smart. In part four of this four-part series, I continue that theme and offer some final thoughts on tax-efficient giving.

Qualified Charitable Distributions

A Qualified Charitable Distributions (QCD) allows IRA owners above age 70 ½ to transfer up to $100,000 directly to charity each year. One of the benefits of donating via a QCD is that you can give to your favorite charity while potentially reducing your taxable income.

In addition, a QCD can satisfy all or part of your required minimum distribution (RMD) once you reach RMD age. This benefit makes it an especially tax-efficient giving strategy for people who have other income sources and don’t necessarily need their RMD.  

Keep in mind that you must satisfy a few key rules for a QCD to be a non-taxable distribution.

Most importantly, the IRS considers the first dollars out of an IRA to be your RMD until you meet your annual requirement. To get the full tax benefit of a QCD, be sure to donate the funds directly from your IRA to charity before making any other withdrawals from your account.

In addition, your IRA custodian will require you to complete and sign a form that details your QCD intention. Then, the custodian will send a check to the charity of your choice.

In some cases, your custodian may allow you to write checks against your IRA. Just be aware that your checks must clear before year-end, so it pays to plan ahead.

Charitable Gift Annuities

A Charitable Gift Annuity is a tax-efficient giving strategy where an individual makes an irrevocable transfer of money or property to a charity. In return, the charity pays the individual a fixed income for the rest of their life or a specific term. The fixed payment amount is based on several factors, including the donor’s age, the donation amount, and current interest rates.

In addition, the donor receives a tax deduction for the initial donation and potential tax-free income from the annuity payments. When the donor dies, the charity retains the remaining assets for its mission.

Here are some things to keep in mind when donating to a Charitable Gift Annuity:

  • The gift is irrevocable.
  • Annuity payments are fixed and don’t adjust for inflation.
  • The annuity payments may be lower than a comparable annuity that is not charitable.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) is a “split interest” giving vehicle that allow donors to contribute assets to a trust and receive a partial tax deduction. The trust’s assets are then divided between a non-charitable beneficiary (who receives a potential income stream for a term of years or life) and one or more charitable beneficiaries (who receive the remainder of the assets).

There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). Each has its own distribution method.

CRTs have several benefits, including the preservation of highly appreciated assets, income tax deductions, and tax exemption on the trust’s investment income. In addition, you can donate a variety of assets to a CRT, including cash, securities, closely held stock, real estate, and other complex assets.

CRTs can also be established by will to provide for heirs with the remainder going to charities of the donor’s choosing.

Final Thoughts on Tax-Efficient Giving Strategies

Qualified Charitable Distributions, Charitable Gift Annuities, and Charitable Remainder Trusts are all potentially tax-efficient giving strategies that can help you achieve your philanthropic goals. Yet they are also complex and may not be right for everyone.

If you’re considering one of these strategies or are looking for more tax-smart giving ideas, be sure to consult an attorney, tax expert, and/or financial planner to determine which strategies make sense for you. In the meantime, please visit our Resources page for more information on this and other financial planning topics.

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Charitable Giving, Part 2: Which Charitable Organizations Should You Donate To?

Charitable Giving, Estate Planning, Philanthropy, Tax Planning, Women and Money / /
Which Charitable Organizations to Donate To

This article is part two in a four-part blog series focused on charitable giving and will address the question: Which charitable organizations should you donate to?

Once you’ve decided how much money to give to charity each year, you can focus on the recipients. According to Giving USA Foundation, the types of charities that tend to receive the most donations are:

  • Religious organizations
  • Educational institutions
  • Human services such as food banks, disaster relief organizations, and homeless shelters
  • Health-related charities such as hospitals and medical research centers
  • Arts and culture charities such as museums, orchestras, or theatre groups

Many people tend to respond to end-of-year donation solicitations they receive by email or mail and give to the same organizations every year. But if you want to be more proactive about your giving, spend some time thinking about the issues or causes you care about and find the organizations that impact those issues or causes most.

Smaller organizations may have a greater need for your dollars than larger organizations. As such, you may want to take advantage of opportunities to give to local organizations, such as theatre or educational groups.

For example, I donate to a local organization called Foodwise, whose mission is “to grow thriving communities through the power and joy of local food.” Not only do I admire their mission, but I was also previously a board member and get a lot of pleasure from attending their events.

Another example is a client of mine who donates to a swim club she belongs to that’s organized as a 501(c)(3) organization. The swim club was renovating its clubhouse, so she donated dollars specifically to help get this project completed. Another client gives to a hiking club because she’s an avid hiker. 

A Word About 501(c)(3) Organizations When Deciding Which Charitable Organizations to Donate To

Suppose you’re eligible for tax deductions for charitable giving. (Ordinally, you must itemize deductions on Schedule A of your Federal Tax return to receive a tax benefit.) In that case, you should ensure that the organization you donate to is a 501(c)(3) organization.

A 501(c)(3) organization is a tax-exempt nonprofit in the U.S. that must operate exclusively for religious, charitable, scientific, literary, or educational purposes. It addition, the organization must not engage in political or lobbying activities or provide private benefits to any individual or group.

It’s also important to note that if you contribute money through crowdfunding platforms such as GoFundMe, Kickstarter, or Indiegogo, these donations are typically not tax deductible. That’s because the individual fundraising campaigns aren’t tax-exempt organizations. 

Investigating the Charitable Organizations You Donate To

There are several ways to investigate charities to ensure they’re using your charitable donations properly.

One well known charity evaluation organization is Charity Navigator, which provides ratings and financial information on thousands of nonprofits and assigns a rating based on their performance.

Another is GuideStar, which allows you to search for nonprofits by location, mission, or types of work. 

How Many Organizations Should You Donate To?

Lastly, many clients ask me if it’s better to give a large amount of money to one organization or spread their donations among several organizations. I’ve found that this is a personal decision.

Some people care about so many things that they want to spread their money widely. Meanwhile, others prefer to have a more significant impact on just a couple of organizations.

One thing I know for sure: try and give at times other than just the end of the year. The charities will appreciate it, plus you won’t get that anxious feeling that you haven’t done enough on December 31. In addition, if you write checks or take advantage of Qualified Charitable Distributions (QCDs), you’re more likely to meet the deadline to get a tax deduction in the year you donate.

Next: Giving Strategically

The first half of this blog series has focused on how much to give and which organizations to donate to. In part three, we’re going to explore various ways to give strategically, so you can make more of an impact with your donations while enjoying the associated tax benefits.

In the meantime, please visit our resources page for additional details on this topic, and stay tuned for more.

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Charitable Giving, Part 1: How Much Should You Give to Charity?

Charitable Giving, Estate Planning, Tax Planning, Women and Money / /
How Much to Give to Charity

This article is the first in a four-part blog series focused on charitable giving and will address the question: How much should you give to charity?

There’s a great need for charitable donations from private sources these days, and with those donations, the world can be a better place. If you have a desire to donate money but aren’t sure how much, to whom, when, and how to benefit from applicable tax laws, this blog series is for you.

How Much to Give to Charity Each Year

As a financial planner, clients often ask me for my recommendation on how much they should donate to charities each year. Because I understand my clients’ financial situation thoroughly, this is not an unusual question. I can provide a suggestion based on their cash flow or tax situation.

But with something as personal and individual as charitable giving, I prefer they determine the amount themselves.

What I’ve found helpful in guiding clients is sharing statistics on how much others give to charity. And as it turns out, there’s a psychological explanation as to why this is helpful.

It’s called “informational social influence,” and it occurs when people do not know the correct (or best) action to take. Instead, they look to the behavior of others as an important source of information and act accordingly.

How Much Do Others Give to Charity?

Americans are charitable, donating hundreds of billions of dollars annually to needy organizations. Although there are significant differences in how much Americans give, higher-income households tend to give a higher proportion of their income to charity than lower-income households (unsurprisingly). However, demographic factors, such as age, education, race, and geography, also come into play.

According to data from Giving USA Foundation, the average individual donation among all income levels in 2020 was 2.5% of income. But individual households earning over $200,000 per year gave a more significant percentage—on average, 4.5%.

According to the same report, households in the Northeast and Upper Midwest gave, on average, 3% to 4% of their income to charity. Meanwhile, households on the West Coast gave approximately 1% to 2% of their income to charity.

Of course, these are averages, and the actual percentages of income people in these regions donate depend upon many factors.

How Tax Deductions Impact Charitable Giving

Once I become familiar with my clients’ charitable giving goals, I include the discussion of “how much” in my annual tax planning meetings.

Why? Because the tax code provides incentives for individuals to make charitable donations by allowing them to deduct these gifts from their taxable income. Indeed, if you’re charitably inclined, you may be able to meaningfully reduce your tax burden each year.

Of course, there are rules and guidelines as to who can deduct such donations and to what extent. I will expand on these nuances later in this blog series.

In the meantime, I hope you find this information useful in determining how much you’d like to give to charity each year. Please check out our other resources for additional details on this topic and stay tuned for more.

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7 End-of-Year Tax Planning Tips for 2022

Estate Planning, Tax Planning / /
End of Year Tax Planning Tips for 2022

With the end of the year fast approaching, Tax Season may be the last thing on your mind. Yet in many ways, the final months of 2022 may be your last chance to reduce this year’s tax liability. To avoid overpaying Uncle Sam and preserve more of your hard-earned income, consider the following end-of-year tax planning tips for 2022.

To minimize your tax liability, consider these end-of-year tax planning tips for 2022:

Tip #1: Identify Changes to Your Tax Situation

In 2022, the standard deduction is $12,950 for single filers and $25,900 for married taxpayers filing jointly. The standard rule of thumb is if you can deduct more than the standard deduction amount in eligible expenses from your taxable income, you should itemize. Otherwise, it’s generally easier and more valuable to take the standard deduction. 

If your income and circumstances have been relatively stable since last year, you likely know already if you plan to itemize or take the standard deduction this year. However, if you’re on the fence, there are end-of-year tax planning strategies you can utilize to reduce your taxable burden.

For instance, consider pre-paying certain deductible expenses—for example, charitable donations or out-of-pocket medical expenses—this year so that itemizing makes more sense.

Let’s say you plan to donate $5,000 to charity each year for the next several years. If you have extra cash on hand this year, you may want to consider donating $10,000 or more to your charity of choice so you can itemize your deductible expenses. Then, next year, you can skip your regular donation and take the standard deduction.

The same is true for out-of-pocket medical expenses. If you know you have certain expenses looming for 2023, you can pay them this year to make the most of the associated tax benefit.

Tip #2: Harvest Capital Losses

Capital gains taxes can eat away at your investment returns over time—specifically in non-qualified investment accounts. Fortunately, the IRS allows investors to offset realized capital gains with realized losses from other investments.

That means you can realize profits on your top-performing investments while selling poor performers to reduce this year’s tax bill. If you have substantial losses, you may be able to completely offset your gains and potentially reduce your taxable income. And in years like 2022 when markets have struggled, you may have more losses than you think.

Keep in mind if you work with a financial advisor, you may not need to initiate this strategy on your own. Most fiduciary financial planners proactively take advantage of tax-loss harvesting to help clients with end-of-year tax planning.

Tip #3: Review Your Charitable Giving Plan

Currently, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on this year’s tax return.

You can also deduct up to 30% of your AGI for donations of non-cash assets. In addition, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years.

When it comes to end-of-year tax planning, donor-advised funds (DAFs) can provide opportunities to meaningfully reduce your tax liability relative to other giving strategies. For example, if you plan to donate $10,000 each year to your favorite charitable organization, it may be more beneficial to take the standard deduction when you file your taxes.

On the other hand, you can front-load a donation of $50,000 to a donor-advised fund and request that the DAF distribute funds to your chosen charity each year for five years. In year one, you can receive a more favorable tax break by itemizing on your tax return. Meanwhile, you’ll still be meeting your charitable goals each year via the DAF. This strategy can be particularly beneficial in above-average income years.

And better yet, you can donate non-cash assets like highly appreciated stock to a DAF and avoid paying the capital gains tax. This strategy can also help you diversify your investment portfolio without triggering an unpleasant tax bill. Plus, you can take an immediate deduction for the full value of the donation (subject to IRS limits).

Tip #4: Look for Opportunities to Reduce Income

Maxing out your qualified investment account contributions is indeed important for meeting your future financial goals like retirement. However, this can also be a valuable end-of-year tax planning strategy.  

First, be sure to check the contribution limits on your employer-sponsored or self-employed retirement plans for 2022. You can also contribute up to $6,000 to an individual retirement account in 2022 (or $7,000 if you’re age 50 or over).  

In addition, individuals with qualifying high deductible health plans are eligible to contribute to a health savings account (HSA). An HSA can be a great way to save and grow your money on a tax-advantaged basis.

In fact, these accounts offer triple tax savings. Contributions, capital gains, and withdrawals are all tax-free if you use your funds for eligible healthcare expenses. And like qualified retirement accounts, you can deduct your contributions from your taxable income in most cases to reduce your overall tax liability.

Meanwhile, depending on your compensation plan, you may want to consider deferring part of your income to reduce your taxable income in 2022.

Employees with deferred compensation agreements typically pay taxes on the money when they receive it—not as they earn it. That means if your employer pays you a lump sum per your distribution agreement, you could potentially get hit with a hefty tax bill.

There are different ways to structure income from a deferred compensation plan. Your options typically depend on your agreement with your employer. The distribution schedule can usually be found in your plan documents. So, if you haven’t reviewed your plan details recently, you may want to revisit them during end-of-year tax planning to avoid any surprises.

Tip #5: Take Advantage of Lower Income Years and/or Down Markets with a Roth Conversion

The IRS allows individuals to convert a traditional IRA to a Roth IRA via a Roth conversion. A Roth IRA conversion shifts your tax liability to the present. As a result, you avoid paying taxes on withdrawals in the future. In addition, Roth IRAs don’t require minimum distributions.

With a Roth conversion, you pay taxes on the amount you convert at your current ordinary income tax rate. That’s why it can be a particularly powerful end-of-year tax planning strategy in tax years when your income is below average.

At the same time, a down market can be an opportune time to take advantage of a Roth conversion. Since account values typically decline in a negative market environment, so does the amount on which you pay taxes when converting to a Roth. Meanwhile, there’s greater potential for future appreciation and withdrawals that tax-free.

After you convert your traditional IRA to a Roth, any withdrawals you make in retirement will be tax-free. However, you must be over age 59 ½ and satisfy the five-year rule. And since Roth IRAs don’t have RMDs, you can leave your funds to grow tax-free until you need them.

While Roth conversions can be beneficial for many, they don’t make sense for everyone. Be sure to consult with a trusted financial advisor or tax expert before leveraging this strategy.

Tip #6: Strategically Transfer Wealth

If you expect to leave significant wealth to your heirs, proper estate planning is key. Fortunately, there are end-of-year tax planning strategies you can leverage to help minimize your estate’s potential tax burden.  

In many cases, gifting is one of the simplest ways to efficiently transfer wealth while reducing your estate. Each year, the annual gift-tax exclusion allows you to gift a certain amount (up to $16,000 in 2022) to as many people as you like without incurring the federal gift tax. Moreover, spouses can combine the annual exclusion to double the amount they can gift tax-free.  

Indeed, cash gifts are most common. However, you can also use the annual exclusion to transfer personal property or contribute to a 529 college savings plan. Alternatively, the IRS allows you to pay educational and medical expenses on behalf of someone else without incurring federal taxes. However, you must pay the institution directly.   

Trusts can also help you transfer wealth strategically while reducing your family’s taxable burden. However, trusts are varied and complex. It’s important to consult your financial planner or estate planning attorney to determine if a trust may be an appropriate end-of-year tax planning strategy.

Tip #7: Donate Your Required Minimum Distribution (RMD)

To keep people from using retirement accounts to avoid paying taxes, the IRS requires individuals to begin taking minimum distributions from certain qualified accounts once they reach a certain age. As of 2020, required minimum distributions (RMDs) kick in at age 72.

You can withdraw more than your RMD amount in any given year—but be prepared for the potential tax consequences. On the other hand, the IRS imposes a penalty of up to 50% if you fail to take your full RMD before the deadline.

Both scenarios can be costly. Fortunately, careful end-of-year tax planning can help you manage your RMDs to avoid high taxes and other penalties.

For example, if you don’t need the extra income, you can donate your RMD to charity. This is a tax planning strategy called a qualified charitable distribution (QCD). A QCD allows IRA owners to transfer up to $100,000 directly to charity each year.

QCDs can satisfy all or part of your RMD each year, depending on your income needs. You can also donate more than your RMD amount up to the $100,000 limit. And since QCDs are non-taxable, they don’t increase your taxable income like RMDs do.

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet your requirement. If you take advantage of this tax planning strategy, be sure to make the QCD before making any other withdrawals from your account.

For More End-of-Year Tax Planning Tips, Consult a Trusted Financial Advisor

This isn’t an exhaustive list of end-of-year tax planning strategies. However, these tips can help you determine if there are opportunities to reduce your taxable burden in 2022.  At the same time, a trusted financial advisor or tax expert can help you identify which strategies are right for you within the context of your overall financial plan.

To learn more about how Curtis Financial Planning helps our clients take control of their finances, please explore our services and client onboarding process.

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Strategic Charitable Giving: How to Make an Impact with Your Donations While Minimizing Your Tax Bill

Charitable Giving, Tax Planning / /
Strategic Charitable Giving

Americans are some of the most generous people in the world. In 2021, Americans gave over $484 billion to charity, according to Giving USA’s 2021 Annual Report. More impressive is that individuals represent 67% of total giving, giving nearly $327 billion in 2021.

There are many reasons to give to charity, from feeling good to creating a legacy. Yet charitable giving can also be important from a financial planning perspective.

In this article, I’m sharing three charitable giving strategies to help you minimize your year-end tax bill.

Charitable Giving and Your Taxes

First, let’s review how charitable giving impacts your taxes.

Currently, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on that year’s tax return.

You can also deduct up to 30% of your AGI for donations of non-cash assets. In addition, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years.

You need to know your marginal tax rate to calculate your potential tax savings. Your marginal tax rate is the amount of additional tax you pay for every additional dollar earned as income. So if your marginal tax rate is 28% and you itemize, you’ll save roughly 28 cents for every dollar you give to charity.

How to Make a Bigger Tax Impact With Your Giving

Yes, you can write checks to your favorite charities throughout the year, and while your donations may be generous, this approach to giving isn’t the most tax-efficient. Here are some ways to give that are:

#1: Donor-Advised Funds

One of the most efficient ways individuals can donate to charity is through a donor-advised fund (DAF). A DAF is a registered 501(c)(3) organization that can accept cash donations, appreciated securities, and other non-cash assets.

One of the advantages of a DAF is that you can take a taxable deduction in the year you contribute to it, even if you haven’t decided which charities to support. You can then invest and grow your funds tax-free within your DAF until you decide how to distribute them.

And, even better than donating cash, you can donate non-cash assets like highly appreciated stock to a DAF and avoid paying the capital gains tax. This strategy can also help you diversify your investment portfolio without triggering an unpleasant tax bill. Plus, you can take an immediate deduction for the full value of the donation (subject to IRS limits).

#2: Bunching Charitable Donations

Bunching your charitable donations can be beneficial if your total allowable itemized deductions are just under the standard deduction. In 2022, the standard deduction for single taxpayers is $12,950 and $25,900 for married couples.

Example:

Let’s say you give $3000 a year to charity, and it doesn’t get you over the standard deduction amount. However, you could go over the standard deduction if you “bunched” your charitable contributions into one year. For example, in 2022, if you gave $9000 instead of $3000 you could itemize deductions and save tax dollars. Then, you would skip donating in the next two years and go back to the standard deduction. Then, in the third year, you would donate $9000 again.

The result will be more significant tax savings over multiple-year timeframes.

#3: Qualified Charitable Contributions

If you’re age 72 or older and have a traditional IRA, the IRS requires you to take a minimum distribution (RMD) from your account each year. In most cases, RMDs are taxable at your ordinary income tax rate. There’s also a steep penalty for not taking your RMD before the deadline.

Meanwhile, if you have other sources of income like Social Security benefits and possibly a pension, your RMD can push you into a higher tax bracket. That means you may pay more taxes than you would otherwise, even if you don’t need the extra income.

The good news is you can donate your RMD by making a Qualified Charitable Distribution (QCD). A QCD allows IRA owners to transfer up to $100,000 directly to charity each year and avoid taxation on the amount.

A QCD can satisfy all or part of your RMD, depending on your income needs. You can also donate more than your RMD, so long as you stay below the $100,000 limit. This strategy can be helpful if you want to reduce your IRA balance and RMDs in future years.

It’s important to note that the IRS considers the first dollars from an IRA to be your RMD until you take the total amount. So, make your QCD before you take any other withdrawals from your account if you want to realize the full tax benefit of this charitable giving strategy.

A Trusted Financial Advisor Can Help You Incorporate Charitable Giving Strategies into Your Financial Plan

Of course, this is not a comprehensive list of charitable giving strategies that can help you make a bigger impact with your donations while lowering your tax bill. Other giving and tax planning strategies may be more appropriate depending on your circumstances and goals.

A trusted advisor like Curtis Financial Planning can help you incorporate giving strategies into your financial plan, so you don’t miss out on valuable tax benefits. Please start here to learn more about how we help our clients and the other services we provide.

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