Charitable giving is important all year 'round, but it's often this time of year when we receive the vast majority of solicitations. Why? Well, charities know that if you're in the position to itemize, you may be looking for a few more deductions to offset some gains and bring your entire tax bill down.
Effective tax and estate planning is often about accounting for trade-offs. Depending on what is included in your particular estate, charitable giving may offer a trade-off that maximizes benefits for you and your family. It is necessary to use the right legal instruments if you intend to make a positive difference in the world while also protecting your estate.
Estate administration isn't only about distributing assets. The probate process can have major tax implications for heirs and beneficiaries. If a deceased loved one's estate wasn't effectively organized with the use of a will or a trust, then a probate judge's decisions could leave you with a heavy tax burden.
In the process of beginning to create an estate plan a lot of people have probably heard that it is best to give away a substantial portion of one’s wealth before they are gone in order to minimize tax liability and to make sure that gifts go to the people and organizations that they are intended for. This can be a very good method for pre-emptively managing an estate, but in some circumstances might not be the best possible option.
Determining one's capital gains tax can be simple for California residents, but it can also become complicated for certain kinds of assets. You need to have held on to an asset for at least a year or more or it will be categorized as a short-term capital gain and be taxed at the same rate as regular income. One should also remain mindful of the fact that, for high-income earners, the Golden State has the highest rate at 13.3 percent.
What this translates into for a high-income earner is paying a combination of state and federal long-term capital gains taxes that can hit a total rate of 33.3 percent. Don't forget to add the 3.8 percent Medicare tax to that figure. Add it all up and you can easily see how important it is to engage in some careful and knowledgeable tax planning.
Tax season is upon us, which means its time to gather your receipts, review your accounts and get to work on your annual return. It can be difficult to determine which deductions and credits you may qualify for, and those factors may seriously effect the outcome of your return. Fortunately, people with disabilities recently received some guidance from the IRS about deductions and credits that may help. There are several types of disability benefits, including Veterans Administration benefits and Supplemental Security Income, are exempt from gross income for the purpose of calculating tax. That could mean a lower tax bill overall. In addition, if a disability requires you to incur extra business expenses, those expenses may be claimed.
As we discussed last month, the much-talked-about fiscal cliff made included some changes to capital gains tax rates. Capital gains tax for households earning more than $450,000 (or individuals making more than $400,000) will also jumped from 15 percent to 20 percent. This combines with the health-care reform taxes, bringing the top federal tax on long-term capital gains to 23.8 percent.