End of Year Planning and Gifting

End of Year Planning and Gifting:


Wins of the Month

Nels shared a win on the team approach. One of their attorneys was in a car accident and is out of work now recovering for a few weeks. There is the win she is ok, but also the win that none of her clients are left hanging as the team is stepping in and helping. That is why it is important to have a team structure as we do.

Download of the Month – Finding Your Balance

The first half of 2022 saw its share of bleak headlines, but one might have flown under the radar: Bonds, long thought to be one of the “safest” options for generating income in retirement, lost a staggering 10% of their value — a spiral that killed their four-decade-long bull market.  Many people have learned the hard way that rising interest rates can put their retirement at risk.

There’s a lot in this world that you and I can’t control. I urge you to take charge of what you CAN, start by downloading this free guide.

End-of-Year Planning

Retirement Plan Contributions

A contribution is an amount an employer and employees (including self-employed individuals) pay into a retirement plan.

There are limits to how much employers and employees can contribute to a plan (or IRA) each year. The plan must specifically state that contributions or benefits cannot exceed certain limits. The limits differ depending on the type of plan. Here is a brief overview.

  • IRAs and ROTHs Limits
    • $6,000 ($7,000 if you’re age 50 or older), or
    • If less, your taxable compensation for the year
  • 401ks or other Employer-Sponsored Plans Limits
    • $20,500
  • SEP Plans for self-employed can be higher

You cannot max out your 401k and an IRA, talk to us and your tax advisor about what’s best for you.

Retirement Plan Distributions

You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72, this was changed from 70 ½ in the SECURE Act. If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. If you have questions about this or need help, please give us a call.

Qualified Charitable Distributions or QCDs, offer eligible older Americans a great way to easily give to charity before the end of the year. Moreover, for those who are at least 72, QCDs count toward the IRA owner’s required minimum distribution (RMD) for the year.

Normally, distributions from a traditional individual retirement arrangement (IRA) are taxable when received. With a QCD, however, these distributions become tax-free as long as they’re paid directly from the IRA to an eligible charitable organization.

Otherwise, charitable donations are subject to limitations for taxpayers who itemize and are not deductible at all for those who opt for the standard deduction which is currently $12,950 for individuals and $25,900 for couples. Unless itemized deductions are above that of the standard deduction, it makes no sense to itemize.

Tax Harvesting and Tax Swaps

Tax-loss harvesting (TLH) is a strategy to lower current taxes paid to the U.S. federal government by deliberately selling an investment at a loss—i.e., deliberately taking a capital loss—in order to use that loss to offset taxes owed on an investment sold at a profit—i.e., a capital gain—or even taxes owed on personal income.

A tax swap is a strategy that involves selling one investment with capital losses and replacing it with a similar, but not identical, investment.

If you have a brokerage account and your portfolio managers are not managing the taxes, then in essence, the value listed on your account is not your value

To learn more about this, watch our interview with Guy Riccardi on tax-efficient money management here – https://bertramfinanci.wpenginepowered.com/tax-planning-and-investing-part-1/

Gifting and Estate Tax Limits

One of the most misunderstood things this gift tax and gift limits.

Bottom line, give as much money as you want. There’s no limit on how much you can give somebody, period. Now, there are limits on how much you can give somebody without telling the government.

Right now, this year, the limitation is $16,000. So, a parent could give a child (or anyone) $16,000 and they don’t have to tell anybody. There are some caveats. $16,000 could come from Dad and $16,000 could come from mom, so a couple you can actually give $32,000 to that child, and not have to report it. If that child is married, Dad can give $16,000 to the spouse, and mom can give $16,000 to the spouse. Meaning you can actually give $64,000 from mom and dad to child and spouse in one year and fill out a gift tax return. Plus, that child’s kids are obviously are multipliers.

Don’t get too hung up over an arbitrary number that the IRS puts out there.

The tax law that was passed in 2012 had some inflators some annual adjustments to that amount. It only goes in $1,000 increments. So you apply inflation wherever you fall in the rounding is whether it changes or not. For example, it was $15,000 from 2018 to 2022 then it jumped to $16,000 and for 2023, after this big inflation year it will be $17,000.

Going forward, January 1, you can give $17,000 and not have to tell anybody. But let’s say you gave $18,000. Then you have to report a $1,000 gift.

Well, when you there’s going to be an estate tax on whatever you leave to beneficiaries. We have an exclusion that allows most families to avoid the estate tax so they can leave their wealth to the next generation.

If you filed a gift tax return because you exceeded my annual exemption by $1000 in the example above, when you die, your exclusion is going to be whatever is statutorily allowed minus $1000. It’s like they keep a clipboard ledger at the IRS.

One of the most popular questions we have, and one of the least impactful is around the estate tax. 99.8% of the country does not have an estate tax problem but 99.8% of the country asks about estate tax. If you were to die today, you’re allowed to leave $12.6 million to the next generation and not pay an estate tax. If you leave $1,000 more than that going to be taxed at 40%. So you can see it’s a pretty big haircut, if you’re above it and if you might be in that categories, it’s important to do some planning.

Married couples can combine this, so effectively right now $25.84 million can go from a mom and dad to the next generation with no estate tax, reduced by any annual exceed exceeding the annual exclusion amount, but really, it’s not a problem. It’s a paperwork drill for most people.

That number is so high, because that adjustment happened in the 2017 tax law, passed by reconciliation, which means unless it has a funding source, it has to expire in 10 years. So this generous estate tax exclusion expires in 2026, which means you will basically cut these numbers in half. It goes back to the 2012 law that was $5 million then adjusted for inflation. If you plan on living past 2026 and you’re going to be over 6 million each on an estate, then you want to talk to now’s about some other planning to avoid estate taxes.

We serve clients in Mineral Point WI, Dodgeville WI, Platteville WI, Lancaster WI, Fennimore WI, Boscobel WI, Richland Center WI, Muscoda WI, Spring Green WI, Mazomanie WI, Sauk City WI, Middleton WI, Madison WI, Fitchburg WI, Verona WI, Mount Horeb WI, Barneveld WI, New Glarus WI, Monroe WI, Belleville WI, Oregon WI, Stoughton WI, Darlington WI, Cuba City WI, Hazel Green WI, Belmont WI, Dubuque IA, Freeport IL

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