by Boris Benic | Oct 3, 2016 | Blog
October 3, 2016
If you’re charitably inclined, making donations is probably one of your key year-end tax planning strategies. But if you typically give cash, you may want to consider another option that provides not just one but two tax benefits: Donating long-term appreciated stock.
More Tax Savings
Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you can enjoy two benefits: 1) You can claim a charitable deduction equal to the stock’s fair market value, and 2) you can avoid the capital gains tax you’d pay if you sold the stock. This will be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.
Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 39.6% and your long-term capital gains rate is 20%. If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.
By instead donating the stock to charity, you save $5,626 in federal tax ($1,666 in capital gains tax and NIIT plus $3,960 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,960.
Tread Carefully
Beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 50% and 30%, respectively, for cash donations).
And don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.
If you own appreciated stock that you’d like to sell, but you’re concerned about the tax hit, donating it to charity might be right for you. For more details on this and other strategies to achieve your charitable giving and tax-saving goals, contact us.
© 2016 Thomson Reuters/Tax & Accounting
by Boris Benic | May 17, 2016 | Blog
May 17, 2016
As the school year draws to a close and the days lengthen, you may be one of the many homeowners who are getting ready to put their home on the market. After all, in many locales, summer is the best time of year to sell a home. But it’s important to think not only about the potential profit (or loss) from a sale, but also about the tax consequences. (more…)
by Boris Benic | Dec 14, 2015 | Blog
December 15, 2015
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).
If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.
So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.
Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.
Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.
For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us.
© 2015 Thomson Reuters/Tax & Accounting
by Boris Benic | Oct 19, 2015 | Blog
October 20, 2015
The additional Medicare tax and net investment income tax (NIIT) apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.
The following types of executive compensation could be subject to the 0.9% additional Medicare tax if your earned income exceeds the applicable threshold:
- Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
- FMV of restricted stock when it’s awarded if you make a Section 83(b) election
- Bargain element of nonqualified stock options when exercised
- Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture
And the following types of gains from exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:
- Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
- Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements
Concerned about how your exec comp will be taxed? Please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.
© 2015 Thomson Reuters/Tax & Accounting
by Boris Benic | Aug 3, 2015 | Blog
August 4, 2015
By distributing profits in the form of dividends rather than salary, an S corporation and its owners can avoid payroll taxes on these amounts.
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