You Know You Need Tax Planning If…
Effective tax planning helps you make smart decisions now to get the future outcome you desire – but you need to make sure you don’t miss anything. Forget to account for one of these situations and your tax plans will go off the rails in a hurry:
- Getting married or divorced. One plus one does not always equal two in the tax world. Marriage means a new tax status, new deduction amounts and income limits, and a potential marriage penalty. The same is true for divorce, but with added complexity. Untangling assets, alimony, child support and dependents are all considerations worthy of discussion.
- Growing your family. While bringing home a new child adds expenses to your budget, it also comes with some tax breaks. With a properly executed plan, you can take home the savings now to help offset some of those new costs. If you are adopting, you get an additional tax credit to help with the adoption expenses.
- Changing jobs or getting a raise. Earning more money is great, but if you’re not careful, you might be surprised by the tax hit. Each additional dollar you earn gets taxed at your highest tax rate, and might even bump you to the next tax bracket. If you are switching jobs, the change also includes things like new benefit packages to consider.
- Buying or selling a house. Whether you’re a first-time homebuyer, you’re moving to your next house, or you’re selling a house, there will be tax implications resulting from the move. Knowing how your taxes will be affected ahead of time will help you make solid financial decisions and avoid surprises. If you’re looking to buy or sell investment property, even more tax issues come into play.
- Saving or paying for college. There are so many different college tax breaks, it can be tricky to determine which ones might make the most sense for your situation. These include the American Opportunity Tax Credit, the Lifetime Learning Credit, the Coverdell Education Savings Account, 529 plans and student loan interest deductibility.
- Planning for retirement. Everyone needs to plan for retirement, but each situation is different. Some of the factors to keep in mind include employment status, current income, available cash, future earnings and tax rates, retirement age and Social Security. Putting all of these variables into one analysis will paint a clearer picture of your retirement strategy and provide a way forward.
Don’t make the mistake of omitting key details from your tax plan. Call us now to schedule a tax-planning meeting.
The Casualty Loss Problem
What you can do to help
Tax laws severely limit who can deduct losses on their tax return caused by a catastrophic event. Now unless a loss is in a presidentially declared disaster area, victims are on their own to pick up the pieces. This is creating problems for those on the fringe of a major disaster and those who have a local casualty loss like a local flood or fire.
With tax savings no longer available to help cover some of the damages, victims need to find relief in other areas. Here are some ways that you can help fill this void:
- Send a gift. While direct gifts are not tax-deductible, the IRS allows gifts of cash or property to any one person valued up to $15,000 each year without having to report it on a gift tax return. Check with the victim to see if they have any specific needs. Maybe you have an extra car or some furniture that you can spare.
- Start a crowdfunding campaign. Organizing a fundraiser on websites like GoFundMe or Fundly is a great way to raise money for someone suffering a disaster. Once created, you can share on social media to raise awareness and ask others to join you in support. This approach can take the form of many small donations adding up to a large gift for the victim. Be aware that donations to individuals, even through crowdfunding, are also considered gifts.
- Offer your time. Volunteering your time is often more valuable than a financial gift. After experiencing a loss, victims will feel pulled in multiple directions. Helping with cleanup or repairs, organizing meals, watching children, or offering your expertise are some examples of how you can reduce their burden. Try to coordinate your efforts with local charities as they will be better able to use your talents where they are needed.
- Donate to charity. There are many reputable charities and local churches that are ready to help when disaster strikes. These organizations rely on donations to continue to provide for people in need. Just make sure the charity is legitimate before you give them your money. Websites like CharityWatch and Charity Navigator are good resources for identifying trustworthy charities. Remember, charitable donations to qualified charities are tax-deductible as an itemized deduction, so keep good records and save receipts.
Be a watchdog for scams.
Opportunists and scammers come from every direction when losses occur. Their goal is to exploit the victim’s suffering and inexperience with the situation to benefit themselves. Fraudsters may set up fake charity funds or pose as inspectors, building contractors or even government agents. With so many things to handle and emotions to process, the victim may be too overwhelmed to see through a scam. Here is where you can help. Take a skeptical approach to anyone soliciting business from the disaster and don’t trust anyone who asks for money.
Thankfully, victims living in presidentially declared disaster areas can still deduct casualty losses on their taxes, but people suffering localized losses cannot. Any assistance you can provide will help ease their suffering during a difficult time.