Charitable Giving: Let the Donor Beware

larry_west

By Larry West, CFP®, MBA, EA
NAPFA-Registered Financial Advisor

People naturally get upset and concerned when they hear stories about how a charity has misused donated money.  It makes them cautious and wary about gifting to organizations with which they are not fully familiar.  Is there a way to check into a charity and see if they are legitimate and using donated funds appropriately?  Absolutely.  A little known website, www.guidestar.org, provides an extensive amount of information about 501(c)(3) non-profit charities.  Their home page has a search box where you can enter the name of a charity.

GuideStar has a premium report that includes more information at a cost, but there is plenty of free information for most people to make a decision.  To get the free information, you need to create an account by clicking on “My Account” and then filling out the information under the “New Customers” section.  It is a very simple process.  Once you have an account and are signed on, just type in the name of the charity in the search box.   The first page of the GuideStar report on the charity has general information such as whether or not it has registered with the IRS.  All that tells you is that the charity wrote a letter to the IRS stating that it has a valid charitable purpose and the IRS accepted it.  However, they also list organizations where the IRS has withdrawn registration.

The charity’s page provides more detailed data on several tabs such as one labeled “Form 990s and docs”.  The Form 990 is required to be submitted to the IRS annually and contains substantial information about the organization.  Yes, you may not care about most of the detailed financial data, but you can look at the top level data such as revenue, expenses and net income.  It contains names of Board of Directors and the executive director and his or her salary.  There are several pages of questions that provide more information.  I always check line 12a of Part III to see if the financials were audited by an independent accounting firm.

GuideStar obtains the Form 990 directly from the IRS, so the charity cannot alter the data contained on it.  The charities can also add some information to their Guidestar report, such as its mission statements and programs that they conduct.

We recommend that you always check GuideStar.org before donating to a charity, and especially if you plan to make a large donation.

Larry West is Chairman of the Board of Directors for Longview Financial Advisors in Huntsville, AL. He is a CFP® professional, an IRS Enrolled Agent, an MBA and has extensive financial planning and investment experience.   Visit “Our Team” to learn more about him and other team members at Longview. Larry can be reached via e-mail at larry@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Fiscal Cliff Resolution

Jessica Hovis Smith

By Jessica Hovis Smith, CFP®, CLU®, CPWA®
Director of Financial Planning

Late Tuesday, Congress passed legislation to extend the Bush tax cuts permanently for individuals earning less than $400,000 a year or married couples earning less than $450,000.

Here are some of the most important provisions of this bill:

•Tax Rates: As mentioned above, current tax rates are extended for everyone making below $400,000 and couples making below $450,000. For those over these limits, the top tax rate increases from 35% to 39.6%.

Capital Gains and Dividends Tax: Capital gains and dividend tax rates increase from 15% to 20% for those individuals making over $400,000 and couples making over $450,000. For those in the lowest two tax brackets, the rate is still 0%.  For all others in between, it remains at 15%.

Alternative Minimum Tax: The AMT exemption patch is extended for 2012 to $50,600 for individuals and $78,750 for married couples.

Social Security Tax: Social Security withholding on wages increases back to the pre-2010 rate of 6.2%.

Itemized Deduction Phase Out: There is a phaseout of itemized deductions and personal exemptions for those who make more than $250,000 as an individual or $300,000 as a married couple.

3.8% Medicare Tax on Investment Income: The Patient Protection and Affordable Care Act (“Obamacare”) included a 3.8% Medicare tax on the lesser of net investment income or total income over $200,000 for individuals and $250,000 for married couples. The fiscal cliff deal does not change this.

Estate Tax: The estate and gift tax exclusion amount is $5,000,000, which is indexed for inflation ($5,120,000 in 2012, $5,250,000 in 2013). The highest estate tax rate increases from 35% to 40%. It appears that the portability option also remains.

Annual Gift Exclusion: While not part of this bill, it also worth noting that the IRS announced in 2012 that the 2013 annual gift exclusion will increase from $13,000 to $14,000.

While this last minute bill addresses many tax issues, it does not address sequestration or the debt ceiling. Both of these battles are set to be fought in a couple of months.

Jessica Hovis Smith is the director of financial planning at Longview Financial Advisors, Inc.  She is a CERTIFIED FINANCIAL PLANNER® practitioner with extensive experience and expertise in insurance and retirement planning.  Visit “Our Team” to learn more about her and other team members at Longview. Jessica can be reached via e-mail at  jessica@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Posted in Tax

2013 Taxes: The Setting Sun Part 2

Jessica Hovis SmithListen to Jessica’s audio commentary for this blog post here:

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By Jessica Hovis Smith, CFP®, CLU®
Director of Financial Planning

In last month’s blog, Mitch Marsden discussed the major tax changes that are set to occur next year under current law. In this month’s post, I’d like to continue that thought, but focus on three tax planning strategies to help you minimize the effect.

1.      Planning for Deductions

If you file itemized deductions, own a business, or are involved in other active investment activities, it may behoove you to spend some time reviewing the rest of your 2012 deductions before the end of the year. We know that the 2012 tax rates are lower than next year’s rates are currently written to be, so unless you have an abnormally high tax year in 2012, it makes sense to evaluate postponing some deductible expenses to 2013, if possible.

For example, if you have been thinking about giving a large donation to a local charity or your church for a special project, consider whether you can postpone that donation to 2013.  Based on current law, this could result in larger tax savings for each dollar of contribution.

2.      Capital Gain/Loss Harvesting

For many years, you would hear financial advisors, including us, talk about harvesting capital losses, but now, I urge you to think about harvesting capital gains. What do I mean?

Capital gains tax is a tax on the growth of an asset. If the asset is held less than one year, it is considered a short term capital gain and taxed the same as all of your other ordinary income; if the asset is held longer than one year, it is considered a long term gain, and taxed at a preferential rate. Before 2001, long term capital gain rates were 28%, and since then, through several legislation changes, rates have dropped to 15% for those in the higher ordinary tax brackets and 0% for those in the lowest two tax brackets. Next year, however, these rates are set to increase to 20% and 10%, respectively.

In the past, we have reviewed your accounts to determine if it makes sense to take advantage of capital losses in your portfolio to help offset other capital gains and up to $3,000 in ordinary income. This year, however, we will evaluate your portfolio to see if it makes sense to recognize some capital gain this year so that you can take advantage of the lower rates. As an example, if you recognize $10,000 in capital gains this year and you are in the 15% capital gain bracket, you will pay $1,500 in taxes. If you were to recognize the same gain in 2013, it would cost you $2,000 in taxes. So, you could save $500 just by recognizing the gain this year instead of next. Now, imagine if you are in the 0% capital gain tax rate this year. The tax savings become huge as you could save the full $2,000!

However, if you already have large carryforward losses from previous years, this tactic may not work as well. Instead, we may look at ways to save this loss or increase it by recognizing more capital losses in 2012. This strategy would give you a large carryforward loss to help offset the 2013 income.

3.      Realization of Ordinary Income

Lastly, 2012 may be a great year to complete a Roth conversion, exercise stock options, or recognize an end of year bonus. As Mitch mentioned in last month’s blog, under 2013 law, tax rates will increase for virtually everyone. So whether you are in the 15% bracket or the 35% bracket, you could benefit from simply taking a minute to think about your potential income sources and what control you have over them. You may save 3-5% in taxes by pulling income into 2012.

As a reminder, here is a chart that shows how tax rates are set to change for each tax bracket in 2013:

2012 Rates

Corresponding Rate in 2013

10%

15%

15%

15%

25%

28%

28%

31%

33%

36%

35%

39.6%

No one likes to write a check to the IRS, but doing so in 2012 may actually save you money. Let us know if you would like to talk further about how some of the strategies above may apply to your situation.  Keep in mind that some may not apply to you at all, or may even be damaging based on your particular circumstances. In addition, the law is always subject to change and could nullify or void these strategies. We highly encourage you to consult with us and/or your tax advisors before acting.

Circular 230 Disclosure: The information and discussion contained in this post is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on you as a US taxpayer. You are advised to seek individual advice based on your particular circumstances from your tax advisor(s).

Jessica Hovis Smith is the director of financial planning at Longview Financial Advisors, Inc.  She is a CERTIFIED FINANCIAL PLANNER® practitioner with extensive experience and expertise in insurance and retirement planning.  Visit “Our Team” to learn more about her and other team members at Longview. Jessica can be reached via e-mail at  jessica@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Posted in Tax

2013 Taxes: The Setting Sun

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By Mitch Marsden
Financial Planner

In the news, online, and at the heart of many of the public and political debates surrounding the upcoming elections, we’re all hearing a lot about taxes.   Kind of depressing, right? Phrases like “tax cuts expiring,” “sunset provisions,” “tax resets,” and “fiscal cliff” seem to haunt much of our media and conversation, and rightfully so as it is a very important issue.  But what does it really mean for you?

This month’s post is the first of a two part series covering, well, you guessed it – taxes, and specifically as they relate to 2013 and beyond.  This first part will explore the major changes that will affect individuals if the current law is continued.  The second part will touch on a number of tax planning strategies that can help minimize the impact of those changes if they do occur.

Below are seven upcoming tax changes that we feel are important to understand and consider as we near the end of 2012. 

1.      Alternative Minimum Tax (AMT) Exemption

The AMT was instituted as a sort of separate tax system that runs parallel to the normal tax system, but was designed to limit higher income individuals’ use of various deductions or exemptions and therefore, increase the tax they paid.  To help make sure that only higher income individuals/couples were hit with this tax, an exemption level was established.  The problem is that while wages have increased with inflation over the years, this AMT exemption does not have any built-in increase and so it has been given only temporary increases called “patches” each year.

In 2011, the AMT exemption for married couples was $74,450 and $48,450 for individuals, including the patch.  Currently, these exemptions lapse back for 2012 to $45,000 for married couples and $33,750 for individuals.  This is a significant change that translates into many individuals getting hit with the AMT that were previously well-sheltered through the exemption.

2.      General Rise In Tax Brackets

Come 2013, income tax brackets are set to rise for everyone.  A lot of focus has been placed on “high income earners” which typically refers to couples earning more than $250,000 or individuals earning more than $200,000.  However, this particular set of changes will affect virtually all.

The table below illustrates how the rates are set to increase in 2013 as compared with 2012.  The basic summary here is that the income tax rates will increase by 3 – 5 percentage points in each bracket.

2012 Rates

Corresponding Rate in 2013

10%

15%

15%

15%

25%

28%

28%

31%

33%

36%

35%

39.6%

3.      Capital Gains Rates

In recent years, 2012 included, we have been enjoying a long-term capital gains rate of 15%, and a 0% rate for those in the two lowest ordinary tax brackets.

2013 long-term capital gains rates are scheduled to increase to 20%, 10% for those in the lowest ordinary tax bracket.    There is also a reinstatement of what is called an “ultra-long-term” capital gains rate of 18%, 8% for those in the lowest bracket.  This special rate applies to capital gains on investments bought after January 1, 2001 and held for 5+ years.

4.      Qualified Dividends

Certain qualifying dividends have been taxed very favorably at the long-term capital gains rates of 15%, 0% for those in the lowest two tax brackets.  If you were to check your 2010 or 2011 tax return, it is very likely that you have been taking advantage of these low rates on some or all of your investment dividend income.

In 2013, the provision for qualified dividends is set to lapse, meaning that all dividends will be taxed at ordinary income rates just like wages or other business income, as high as 39.6%!  For those with a low ordinary tax rate, this change may not make much of an impact, but for those in the higher brackets, it is a significant increase.

5.      Personal Exemption & Itemized Deduction Phase-outs

In the past, high income individuals and couples had to reduce their personal exemptions and itemized deductions by a percentage of their income over certain thresholds.  This is called a phase-out.  Only recently were these phase-outs completely done away with for everyone.

In 2013, these phase-outs are back and are projected to affect those with income greater than $174,450.  The net result for those affected by the increase is typically to add an additional 1-3% to your highest tax bracket’s rate.  The actual addition in tax this causes is dependent on one’s income and how large the family is.

6.      Lapse of Social Security ‘Holiday’

In 2011 and 2012, employees have been enjoying a reduction in the social security tax withholding on their paychecks.  The holiday moved what was 6.2% of withholding down to 4.2%.

In 2013, this holiday is set to lapse with the withholding rate returning to 6.2%.  This means that an individual earning a $100,000 wage in 2013 will see an increase of $2,000 in payroll taxes alone.

7.      New Medicare Taxes

Two new Medicare taxes are set to begin in 2013, both as a part of the funding provisions of the relatively new healthcare bill, the Patient Protection and Affordable Care Act.

The first new tax is an additional 0.9% tax on individuals with earned income in excess of $200,000, in excess of $250,000 for couples.  This tax will apply to the total household earned income for couples, not the individual.  For example, if a household has both spouses working and each spouse earns $150,000 for a total household earned income of $300,000, the $50,000 above the threshold would be subject to the additional tax.  In this example, the new tax on the excess would be $450.

The second new tax is an additional 3.8% tax on the lesser of: 1) Net investment income (interest, dividends, annuities, rents, capital gains, passive investment income, etc.); or 2) The excess of Adjusted Gross Income over the applicable threshold – $250,000 for married couples, $200,000 for individuals.  Depending on your own total income level and your net income from investments, this could be a significant addition to your 2013 tax bill.

Summary

While the technicalities of each increase or new tax can be confusing and overwhelming, the message is clear: taxes are set to rise in various shapes and forms next year.   Of course, there is always the possibility that Congress will make changes before or even soon after entering 2013.   While we feel it is wise for you to understand how the changes would affect you and to explore appropriate planning strategies, consider waiting to implement anything major until closer to the end of the year when the tax picture for 2013 is (hopefully) clearer.

Circular 230 Disclosure: The information and discussion contained in this post is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on you as a US taxpayer. You are advised to seek individual advice based on your particular circumstances from your tax advisor(s).

Mitch Marsden is a part of the planning team at Longview Financial Advisors in Huntsville, Alabama.  He is a graduate of the University of Utah with a degree in Financial Planning as well as a candidate for CFP Board certification.  Mitch can be reached via e-mail at mitch@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Posted in Tax

4 Tax Deductions/Credits to Reduce Your Tax Bill

 

By Mitch Marsden
Financial Planner

Once again it is that time of the year when we sit down with our tax preparers or tax prep software and review just how much money we are handing over to Uncle Sam.  Doesn’t it just make you cringe?  On the bright side, having to pay taxes at least means there is income or gains in some form or another, a blessing some can’t lay claim to.

Here are three deductions and one credit you or your family members may be able to take advantage of to help reduce the cash shelled out to the taxman.

1. Medical Deductions.  You may already be doing this to the max, but take a look at a few of the expenses listed below that the IRS allows you to include as medical expenses.  Make sure not to miss them if you or your loved ones itemize deductions!

  • Medical and Dental insurance premiums paid with your own after-tax money, including Medicare  premiums for Part B, Part D or other Medicare supplement insurance
  • Long-term care insurance premiums (subject to certain limitations)
  • Transportation expenses that are necessary for medical care (not just for general health). This could include something as simple as trips to the hospital or doctor.  The standard mileage rate for 2011 was 19 cents a mile from January 1 to June 30 and 23.5 cents a mile from July 1 to December 31
  • Medical expenses paid on behalf of “qualifying relatives” even if you are not able to claim them as a dependent on your tax return
  • Other overlooked expenses such as for eyeglasses needed for medical reasons, hearing aids, pregnancy test kit, birth control pills, wheelchair and a number of other tools, equipment, and services for medical purposes

These are just a few examples of what the IRS has listed in 2011 Publication 502 which can be accessed at http://www.irs.gov/pub/irs-pdf/p502.pdf.  Be sure to work with your tax preparer to understand and follow the rules in order to take the appropriate deductions.

2. Investment Advisory Fees. If you paid fees to an investment advisor for managing or advising you on your investments, you may include these fees as a miscellaneous itemized deduction on your Schedule A.  Note that this does not include commissions you may have paid to a broker or advisor on the purchase or sale of investments.  Fees that are paid directly from a retirement account are also not includible.

3. Alabama State Tax Deduction for 2011 Contributions & Rollovers to AL State 529 Plan.  For Alabamians, if you made a contribution or rollover to a CollegeCounts Alabama 529 plan in 2011, you may take a deduction for the same up to $5,000 ($10,000 for couples married filing jointly) on your Alabama state income tax return.  This is also true for contributions even if you were not the owner of the 529 account.  If you live outside of Alabama, check into your own state’s 529 tax rules as many offer a similar tax benefit to their residents.

4. Retirement Saver’s Credit.  This little known tax credit rewards taxpayers for making contributions to an employer-sponsored retirement plan or to an IRA (Roth or Traditional).  The credit ranges from 10% to 50% of the contribution, subject to limits, depending on the filing status and adjusted gross income level.  The credit also only applies to single filers with income under $28,250 and to couples married filing jointly with income below $56,500 in 2011.  This credit is an additional bonus to the other great tax advantages offered by retirement plans.

If you are not eligible for the credit, but you know adult children, other family members or friends that may be eligible, share the good news with them.  They can even still make a 2011 IRA contribution until April 17th, 2012 to qualify for the 2011 credit.  It is also an excellent way to encourage them to make long-term savings and investments today.

Good luck to you as you navigate this year’s tax season.  Remember, tax planning is an all-year-round process, so begin thinking today about how to legally and rightfully minimize your 2012 tax burden.

Mitch Marsden is a part of the planning team at Longview Financial Advisors in Huntsville, Alabama.  He is a graduate of the University of Utah with a degree in Financial Planning as well as a candidate for CFP Board certification. Mitch can be reached via e-mail at mitch@longviewfa.com.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Posted in Tax