Year-End Tax Strategies | Planning for Individuals and Families

So let's get talking about some of the things. So for our agenda, we're going to talk about some income tax planning. Then actually we're going to talk about philanthropic planning, next estate and gifts and conclusion. We will leave a little bit of time for questions. As noted, you can ask questions throughout the presentation and what we will try to do is as we're going through to make sure that we can get those answers in throughout the presentation or touch upon them at the end, send different text questions or based upon different facts and circumstances. The things that we are presenting are general in nature, so you have to really take a step back to see what applies to your specific situation. Okay, so let's get into it.

So for tax planning, tax planning can achieve many different goals. So some of the things, the first thing is really just figuring out ways to reduce your current year tax liability, but there are different things that you can do which can have impact going forward. So there may be ways to defer tax liabilities from this year into another year or allow for different deductions and credits. One of the things that I did note earlier is about the capital gains tax. So really taking a look at what capital gains that you may potentially have and seeing about ways to minimize the tax exposure on that underpayment penalties for not paying the appropriate amount of estimate taxes can be quite significant and we'll talk a little bit about that as well. But at the end of the day, you want to be in a position where you have an understanding of your tax liability and kind of look at things for the current year and subsequent years to see what are the things that you can do to be able to maybe to reduce your tax costs, improve cash flow with increased cashflow.

You then have the power to do the things that you want with that cash, whether it be invested in other opportunities, increase savings, contribute to retirement plans. So overall we want to take a look at everything. One of the things I did want to point out about tax planning is the firm has put out a really comprehensive newsletter on this extra was just published on Friday, and if you do go to the firm's website and you'll see it's actually one of the first articles in there. All the things that we're talking about today are listed in there as a bit more detail. So during our presentation we're just going to cover on the different topics. We want to get you in the right mindset to focus on tax planning and think about the things that may impact you.

So the first step I think with anything is really getting it organized. Take out your prior year tax return, take it out, look at it. Look at what information you expect to have for 2024. Complete an inventory of your financial assets and investments. If you are working with an investment advisor, contact them. Make sure that you have an understanding of what income and items you're going to expect this year. Take a look at your pay stubs and tax withholdings. So often when we would put this together, we were thinking about the questions that we receive when we're actually preparing someone's tax return and by that time it's kind of too late. Now we're kind of putting together things in April that occurred in the prior year, so by taking a look at these different things. But one thing that I always hear is that someone receives a 10 99 in February and they say, oh, I didn't realize I had $20,000 of dividends.

I didn't realize I had capital gains. And that is a consistent thing that we hear all the time and you don't realize that you have those things because those are happening on your accounts. You're not seeing your checking account go up by a certain amount or some other actions that are happening that make you realize that you have that income Dividends are normally reinvested, so they're received, they're reinvested again, but they're taxable. So that's a really key item that you want to make sure that we plan for. Looking at your pay stubs and withholdings are also really important to make sure that something didn't happen in correctly during the course of the year and we want to make sure that you have the right accounting for. I also definitely always recommend my clients to establish an IRS online account. I think this is becoming more and more important.

This is a place where the IRS, if they're issuing correspondence, a copy will be on there. You can see the tax payments that you've made. You can see that your tax return has been filed and processed and with all the different incidents of fraud, this does become very relevant to make sure that somebody else hasn't filed a tax return using your social security number or something else isn't right. Another thing to think about is your income sources for 2024 for the remainder of the year and any expenses. Lastly, before 1231, you definitely want to consider any gifting and Jen will talk a bit more about that as well as making sure that you maximize any retirement contributions and take advantage of zeroing out flexible spending and dependent spending accounts. So now that you're a bit organized and you have that information together, we want to be able to compute what your taxes are and think about the cashflow management.

If you have a tax liability, there are requirements to pay your taxes throughout the year through withholding your estimated payments. If that's not done, there are penalties associated with it. So in 2023 and 2024, the interest rates being applied was 8%, which is really high. So if you owe the IRS money, they're going to charge you 8%. It doesn't work the other way. So the IRS did actually just recently announce that they are dropping the rate to 7% in the first quarter, but still very significant amount for something that you can manage through your withholding and through other payments, through taking the time to review things.

As far as income is concerned, there are some planning around income, the ability to defer income to a future year in which you think that the tax rate may be lower or in some cases you may want to accelerate income. This is really going to depend upon your income sources and your overall situation. In some cases, some other things may happen where you are, I see your filing status is going to change next year, so you're going from single to married or from married to single. It can go either way, but when you look at that overall thinking about the timing of those things and how that into place maybe with your filing status and with your overall expectations. I mean right now the tax rates will be comparable, but we will have a new administration in place in 2025, so we will start to see some changes there as well.

So just really understanding what you have is really important. I touched upon earlier capital gains. So we've seen the stock market has done extremely well this year, so you may have realized various capital gains. Do you have prior capital losses? Are there things in your portfolio that are currently worthless that makes sense to reflect as reflect as a loss now, or are there just other items in your portfolio that are a loss that it makes sense to take those losses now? But you have to take a look at things holistically and if you are working with a tax provider or a financial advisor, they should be able to help you look at that to determine what those amounts are.

Another thing around capital gains are things around wash sales. So we put a little slide in here about that because that is something where I've seen many clients say, oh, I didn't realize I sold something and then I bought basically the same stock 20 days later because there was just a fluctuation. And if that is the case and if there is a loss, that loss is disallowed if you replace the same stock with a substantially identical investment 30 days before or after the sale. So I've seen many instances where individuals have large wash sales and they thought they were loss harvesting and in turn they did not. So again, working with your financial advisor and looking at your portfolio to ensure that you are doing the right thing as it relates to your capital gains.

I've added this in here about 10 99 k, I did this last year as well and what's interesting right after I did this presentation two days later, the IRS issued an alert and said, okay, well there's too much going on for the 2023 reporting, but for 2024, the way things stand right now is that if you receive payments from a third party network, you'll receive a 10 99 K if the gross payments are greater than $5,000 regardless of the number of transactions. So just put this in here because it may not have a tax impact. However, if you do receive a 10 99 K, it does require reporting and it could be something that hey, you sold something on like an eBay or Poshmark or something in which you really didn't have any gain. Maybe you sold something for a hundred dollars and it costs you 200. Well, if you're getting a 10 99 K for a hundred dollars, you need to report that in your tax return, but then you can zero it out so that there's no gain or loss. But the rules are that if the gross payments are greater than 5,000, the reporter has to provide you with a 10 99 K, but these reporters may provide you with a 10 99 K anyway. So check your mail and just understand what is there.

This is what the form looks like deductions. So kind of in the same regard as income. Looking at your deductions, are there items that you can prepay, make an extra mortgage payment if some additional mortgage interest, if you have medical expenses, can you make sure that all of them are paid up this year or wait until 2025 to pay the balance of them to take the deduction? Then so looking at your overall, if you looking from a business perspective, maybe you're looking to buy in asset to service and other items, take a look at what you have and what you're doing to see if it makes sense to take advantage of any deductions this year. One of the items that we do talk a little bit about is bunching of charitable contributions. So I think this kind of slide is a little bit helpful. Some of you may be aware that when you're looking at your tax return, you can accumulate your income, so you get your adjusted gross income and then you take deductions.

You can either take the itemized deduction or standard deduction. So in 2024 for a married couple, the standard deduction is 29,200. That's set to go to about 30,000. We'll probably get indexed going forward. So you need to have at least $29,000 of deductions before you can take a deduction above and beyond the item of this deduction. So there's this concept of bunching deductions so that you can then try to take advantage of it and in this example what we're saying is that someone normally gives to a charity about 30,000 per year and you say, okay, you know what? This year I'm going to give 150 to the charity for my next five years. I'll put that into a donor advised fund. So you get that deduction. What ends up happening is that you get the benefit of that deduction in year one and then in years two through five then you're using the standard deduction and by doing so you can see that you are getting about at $80,000 of additional deductions over five years. Now this may not be something that is for everybody and we use a five year window to kind of show that bigger drastic change, but if you look at it from a two year window or a three year window, the concept still applies where you can then try to put more of your deductions in one year versus the next to take benefit of those deductions.

We go into charitable contributions. I know Jessica's going to go through lots of different examples of this, but whenever there is things with charitable deductions are limited to your A GI and there's different percentages based upon the types of deductions, but we'll talk a little more little about that later. I did want to mention the qualified charitable distribution. Some of you may have heard about this where if you are taking money from a retirement plan over the age of 70 and a half when you're taking a distribution, if that distribution is directed to a charity, what in essence happens is that from a reporting perspective, that income that you pulled out as a distribution is not considered taxable income because it's going to a charity and this really is a good way. If you are being very charitable and you are taking retirement distributions, this is a good way to reduce your tax because you are reducing your adjusted gross income so you're not getting a deduction on schedule A as an itemized deduction, but you're not including the amount as income. So for 2024, this is actually the first year in, I don't even know how many years that they've actually indexed the distribution and the amount that you can take as a qualified charitable distribution in 2024 is 105,000. So it's been a hundred thousand for many, many years and I think it's going up to 108,020 25, but that was part of one of the new tax acts where they're indexing that a little bit to account for inflation.

Okay, so our first polling question, so do you review your tax and financial information throughout the year? So we'll give you about 45 seconds to cover that and while you're answering that, as I noted earlier on the Eisner website, there is a really great article that talks about all of these tax planning items, gives a little bit more specifics, and one of the things that it also does is there is a little box on there if you want to get a copy of the Eisner personal tax guide. So that's something that's published in March of every year and that is a really good guide. I'll mention it again at the end. So we done with the poll, looks like we've got 83% has responded. Make sure you get your polls in because I know we want to get our CPE credit.

Patricia Kiziuk:Okay, so good. So 86% of you do this. This is actually something that I've been doing myself even as a tax person. I didn't do very well myself, but I've really started to do is look at my things a little bit more carefully and it really is important as they talk about wellness. Financial wellness is definitely something that you want to make sure that you're thinking about. It definitely alleviates a lot of stress in the process. The fact that you're here, you are now focusing on your financial wellness. So talking a little bit about retirement plans, we're just going to go through a few different items, so many different things going on with them, but retirement plans is definitely a good way for tax planning, whether you're contributing to a 401k, contributing to an IRA to get those different types of deductions, but also a good way to defer income so the earnings is deferred and we'll talk a little bit about Roths because that does provide a great, great benefit if you are able to utilize a Roth strategy.

Now some of you may be like, well, what's the difference between a retirement plan and a Roth? And with a Roth when you do because it's being funded with in essence after tax dollars, when you do go to take a distribution later on, the earnings are tax free. So that is definitely a great benefit. Many of you probably are contributing to 4 0 1 Ks and those are great because you're getting a current deduction for the amount for the income that you're putting into the 401k. So you're getting a tax deduction currently and the earnings over time are not being taxed, but then when you go to take the money out years upon years later, that's when you'll pay the taxed bill on the amount that you contributed in the earnings. So to be able to put something into an investment vehicle where you can take out earnings later on and not be taxed, especially when you're at retirement and have so many other different expenses and may not have ongoing income, it definitely is helpful.

So one of the things with IRAs and the retirement plans is this concept of required minimum distributions. So we did put this in here because they have raised the age for when you need to take an RMD, so currently it's 72, so starting in January of 2023 it went up to 73 in January, 2033 it's increasing to 75. I know that's also one way that people do want to keep their money in these investment vehicles and not be required to take everything out at different times until they actually need it. Another thing that went into play in 2023 is that often we do find that individuals forget that initial year to start taking their RMDs and there are significant penalties associated with that and the IRS has reduced the penalty associated with that in the first year, but you can also request a waiver for no penalty as well. But when you're going through planning, just understanding based upon your age and what you need to take out of those accounts.

So the backdoor Roth is something that we continue to bring up because it is a really good way to take money and to convert, either do it through a backdoor Roth or if you could do it or if you do a conversion from a 401k or an IRA to a Roth. But having monies in a Roth account does provide better benefits. Longer term there isn't a required minimum distribution amount, which is helpful, but also the fact that when you take the money out of the account it's non-taxable definitely creates a benefit and with the backdoor Roth what individuals will do is contribute to a non-deductible IRA the maximum amount and then immediately convert it into a Roth. So there is no earnings or anything like that at the time. Now this is also based upon if you don't have other traditional IRAs and things of that nature. If you do, then it does work a little bit differently. So by doing so each year, if you're doing this year or upon year, you can accumulate a significant amount in a Roth IRA.

The other item I did note in here is the mega BOR Roth, and this is done mainly through employers where you contribute after tax monies to a 401k and then it is automatically then you elect to have it converted into a Roth and with that you can actually contribute a significant amount to this. So it's up to what, $69,000 between a regular 401k and then these Roth 4 0 1 Ks and if you're over 50 there is the catch up contribution. So this can be done through your employer. This is a way to have significant savings over time.

So with the secure Act, there was a few different changes that began in 2023 or beginning tax shares after 2023. One of the ones that I think is really interesting is there was acknowledgement that there is many unused 5 29 accounts where parents had made contributions and did not need to use all of the funds for their 5 29 plan. So as a result they have these ongoing accounts. If they just take the money out, then it's not a qualified distribution and would be subject to penalties. So starting in 2024, you can start to roll over monies from a 5 29 plan into a Roth IRA and you could do up to 35,000. Now this is also subject to the annual IRA limits, so it would have to be done over years and to be perfectly honest, this is something that I've done. My daughter is currently in school but I've identified that she will not utilize all of the money that's in the 5 29 accounts world.

I don't think so. She'll said Well, so it does make sense. I started to take, so this year I did it, I completed the paperwork, submitted it and moved some money from the 5 29 plan into her Roth IRA. So definitely something to think about and to look into if you have any of those unused college savings plans, monies and it is a way to kind of keep the money invested but also not penalize anyone else. Yeah, so there's a couple of other things. There's another thing for tax years beginning after 2024, employers are required automatically enroll employees into their workplace plans. The employees can choose to opt out of it, but it is something that they're really trying to encourage saving and just with that acknowledgement that a lot, there's a lot of people that just do not have retirement plans or other savings plans and this is a way to try to catch up with and get people to start doing that credits.

So credits are a great thing. So if anyone is familiar with credits, credits becomes a dollar for dollar savings on your tax return. So there are different homeowners credits, resident energy credits you may see on your brokerage statements and foreign tax credits. You want to make sure that those amounts are getting on your tax returns because they do reduce your tax dollar for dollar, the clean vehicle credit beginning in 2024, you can actually transfer vehicle credits to a qualified seller through the dealer. So that was something that is new there and folks continue to see what types of credits are allowed there. Some of these credits are based upon your adjusted gross income, so that will determine your eligibility, but make sure that you are aware of the different credits if you're doing anything home efficient, any energy type credits, those are things that you really wanted to account for on your tax returns because that becomes money back in your pocket.

So this is just talks about we included on the slides, different things about things that are adjusted for inflation. The different social security wage bases are increased and retirement plan contributions. So beginning in 2025, workers that are over age 60 have actually a higher catch up limit for their 4 0 1 ks. So again, going back to this whole concept around savings and making sure that families are able to do things like that, this was added to the latest tax act so that you can contribute more to your retirement plans and save more. Okey doke. So that kind of will wrap up where we are from an individual perspective. We talked a bit about getting organized and going through different things. One of the other items that we didn't touch upon earlier is pass through entity credits. If you're invested in a partnership or a business that has these pass through entity credits from a state tax perspective, those are definitely a good way to be able to take that state tax deduction that has been disallowed.

But at the end of the day our goal here is to give you information so that you can start to look at things, ask questions and see what really applies to you. Our personal tax guide, which is available on the Isra website, is full of so much information and it really goes into detail and the article that they just published last week is a really good summary. It's a pretty very quick read and I think that'll definitely help you as you're going through and reviewing your information. Two other plugs I wanted to put in there is that on December 4th, Eisner is doing a webinar on the Corporate Transparency Act for the beneficial ownership reporting that's required. So if you have an LLC, you may be required to do this reporting, so by attending that session you'll get more information and this must be done before the end of the year and it's really important.

So definitely attend that and then in January we will be doing a session on kind of looking forward to 2025 and new tax policy. So the last four years we haven't seen a tremendous amount of tax changes, just lots of tweaking of different things and adding certain items. There hasn't been a really big overhaul, but 2025 is when a lot of different tax provisions are set to sunset, so it'll be good to understand what is coming up ahead. Alright, so with that I will then pass things along to my colleague Jessica who will talk a little bit about philanthropic and planning opportunities. Thank you.

Jessica Wolff:Hi everyone. I hope everyone's doing well today. My name is Jessica Wolff, I'm a senior manager in our tax department at Eisner Amper. I predominantly focus on high net worth individuals and nonprofits. Unfortunately, one of the biggest, or fortunately one of the biggest ways since the TCJA ACT was passed in 2017 for individuals to accomplish some tax planning was through the use of charitable contributions. There are a myriad of things that can be done to incorporate income tax planning and there are many charitable vehicles that can be used to accomplish this. Just a full disclosure, I'm going to be using the term public charities throughout my section and I would just like to disclose that for purposes of this, my use of the term public charities includes churches or association of churches, synagogues, temples, mosques, other religious organizations, federal, state, and local governments. If the contribution solely benefits the public nonprofit schools and hospitals war veterans group and not just simply your run of the mill 5 0 1 C3 public charity, I think it's really important that if you are considering doing significant charitable or philanthropic planning, you want to get in touch with your tax advisor, they will be able to prepare projections for you and computations.

Some of this planning may involve doing two year income tax projections to determine when you're going to get the best optimal benefit for your deductions. There are even instances where they may want to do a rough projection over five years if the contribution is significant enough.

So one of the things that really we need to understand is that there are actually a GI limitations for charitable donations. Patty may have mentioned this before, but a GI refers to adjusted gross income, which is essentially your total income minus your adjustments to income such as self-employment taxes, self-employment, health insurance, contributions to retirement accounts, but before your standard deduction or itemized deductions. So for public charities a GI limits for cash or an ordinary income property, it's 50% for ordinary income property, 60% for cash, 30% for non-operating grant making private foundations and 50%, again 60% for cash only to private operating foundations. Those percentages decline with donations of appreciated capital gain. Property appreciated capital gain property are essentially if you were to have recognized a long-term capital gain and you sold it at fair market value on the date of the contribution. So essentially it includes capital assets held for more than one year. Ordinary income property are items such as inventory, manuscripts or artworks created by the donor and short-term capital assets.

So any excess amounts contributed over what is deductible in a year may be carried forward to the subsequent five years subject to the limitations for that year. So quick example, our friend Grace makes a cash donation to a public charity for $2 million and her a GI is 3 million. Her charitable deduction is 1.8 million. Since Grace made a contribution to a public charity, she can deduct up to 60% of her A GI. The excess amount of 200,000 is carried forward for the next five years. Now grace's a GI is $3 million. Her a GI limit is 60% since it was a cash donation to a public charity, thus allowing her to deduct $1.8 million in the current tax year, 2 million minus 1.8 million is $200,000 that she'll be able to carry forward up to the next five years subject to IRS limitations. Now if in year two grace's a GI was $200,000, then she would be limited to 60% of that $200,000 only allowing her to take $120,000 of that $200,000 carry forward. So an additional $80,000 would be carried forward to year three. Again, whether you can take a charitable contribution in a subsequent year depends on your tax circumstances in that particular year and carry forwards might be lost in a subsequent year if the standard deduction is used instead of itemized deductions.

Patty spoke about this and had a nice little chart that she spoke about with all of you not too long ago, but bunching of charitable deductions to a donor advised fund or a private foundation in one year to make use of the itemized deductions and obtain a maximum tax benefit has been a popular planning technique since the passage of the TCJA once in a private foundation or a donor advised fund funds might be distributed to public charities over a few years. Of course subject to certain provisions in the internal revenue code. A GI limitation for a donor-advised fund, otherwise known as adapt is 60% for cash contributions and 30% for contributions of appreciated capital gain property. A donor-advised fund is considered a public charity and falls under 5 0 1 C3. There are other ways to also achieve bunching. If you don't have a daf, don't want to open a daf, you can simply just donate more to public charities in one year as opposed to other year.

Take our friend Grace for example. She typically donates 7,500 to public charities each year, but she also typically does not itemize. Maybe one year she decides she would like to itemize and she decides to donate $15,000 to her charities of choice in one year allowing her to itemize and then maybe the following year she won't make any or will make small charitable contributions and claim the standard deduction. Like I said, there's multiple ways to achieve maximum deductions and not every way is right for every taxpayer and again, we encourage you to speak with your tax advisor. If this is something you are interested in or interested in learning more about using long-term capital gain property to fund charitable contributions can save substantial taxes. Here we have grace. Again, we are assuming grace in this example is subject to the 20% long-term capital gain rate and a 37% marginal tax rate and we're also assuming she's subject to a 3.8% net investment income tax.

So if Grace were to donate stock long-term capital stock that has a fair market value of a hundred thousand dollars and her original cost basis was $60,000 and Grace would decide to donate to a public charity in 2023, it's more beneficial for her to donate the stock to the charity rather than selling the stock first and then donating the proceeds. So if Grace were to sell the proceeds, if she were to sell the stock for a hundred thousand dollars, her original cost basis was $60,000, she would be subject to tax on a $40,000 capital gain and at 23.8%, remember we have our 20% long-term capital gain rate and or 3.8% net investment income tax. Grace would be paying $9,520 of tax on that capital gain. She wouldn't be getting tax savings on her contribution for a full $37,000. If you take that tax cost into consideration, her net federal tax savings would be 27,480.

Now if Grace were to outright donate the stock to the charity, she wouldn't be incurring that capital gain and wouldn't be subject to that tax. She would be getting the full $37,000 deduction in her situation. So there are a lot of planning opportunities here for donors to use long-term appreciated property to accomplish philanthropic planning. Just a few thoughts and just things to keep in mind. You want to make sure that you satisfy any transfer of any contributions prior to year end so that you get the benefit of your deduction in the correct tax year. You'd never want to use securities where the fair market value is lower than the cost. The deduction will be limited to the fair market value, so you'd be losing the benefit of the loss. So even if you have no capital gains to offset your loss, it's still better to sell the stock and recognize it and donate the proceeds. Like I said, even if you don't have any capital gains to offset that loss, you can offset ordinary income up to $3,000 or 1500 if you're married, filing separately and carry forward the remainder of the loss indefinitely. Alright, we have come to our first polling question. What is the a GI limitation on a cash contribution to a public charity? A hundred thousand, 60,000? I'm sorry, a hundred percent, 60%, 50% or 30% a let's see how well some of you guys, sorry, go ahead.

Jessica Wolff:Fantastic. The answer is 60%. I do see a question in the chat. Are there required distributions from a DAF currently? No, but I'm going to talk about that in a little more detail later. So the donation of non-cash charitable contributions can be a wonderful planning tool, but there's a lot of things you need to keep in mind. In general, non-cash charitable contributions could be artwork. Real estate vehicles publicly traded securities, they do not include cash checks. Other monetary gifts donors can usually deduct the fair market value of non-cash charitable contributions subject to IRS limitations and requirements. So when non-cash charitable contributions exceed $500, individuals have to file a form 82 83 with their federal income tax return. If they donate non-cash charitable contributions over $5,000, excluding publicly traded securities and some other exceptions, then qualified appraisals are required to claim a deduction for this contribution. So $500 and under in non-cash charitable contributions, no separate forms are required. You just report this amount on Schedule A when you file your tax return. If the fair market value is $501 to $5,000, you'll need to file an 82 83 and again, if your non-cash charitable contribution excluding publicly treated securities and some other items, you will need to file an 82 83 along with a qualified appraisal.

If you are donating something in excess of $5,000, you want to make sure that you find a qualified appraiser as soon as possible. A lot of times they're difficult to find. You want to find one that specializes in whatever it is you may have donated and the good ones are really busy at year end. You want to make sure that they can get you in that they can complete your appraisal timely to get it to you in enough time for your tax prepar to finish your returns and to file on time. You also want to meet sure that the charity wants your non-cash property. I know that might sound silly, but not every charity wants everything or even anything. So if your contribution is significant, make sure that they really want this property, make sure that they plan to use it as a part of their exempt purpose and make sure that they're going to hold onto it. In the event they were to sell your property that you donated within three years, they're going to be required to file what's called a form 82 82 and report that to the IRS, report it to you and then you might be required to recapture some of this deduction in a subsequent year as income.

Here's an example of our 82 83 over the next couple slides, we're just going to a quick look at this form. So here's the top half of the first page. The form requires a lot of details of the donation, the fair market value, the charity, the address, original basis, date contributed, and some other facts. One thing I would like to emphasize is that it's important that this form is properly prepared. It serves as a comprehensive report to the IRS and substantiates. Its value of these contributions that are being deducted on your return. This form is in the IR S'S crosshairs. So improperly prepared with forms with incomplete information could lead to the disallowance of the deduction. Please don't let that deter you from making non-cash contributions. They are still a really, really good philanthropic planning tool and your trusted advisor and good accountants will know how to properly report this on your return second page.

This is the bottom half of the first page of the 82 83 here. Again, just a lot of detail for items that are donated where fair market value exceeds $500,000. This is the top part of the second page for partial interests and other restricted use property. And then finally, the bottom half of the second page, this is where the appraiser must sign and the don e must sign. So it is important that signatures of both the appraiser and the charity are obtained when you file your return because again, if you don't have the proper signatures, it would be considered incomplete and the IRS could deem your contribution is not deductible. You are also required to file a copy of your appraisal with this form and your individual income tax return.

Not going to go too much into this, but there are some planning options with charitable remainder trusts. These are complicated vehicles. Not only are there charitable planning options here, they're also estate options here. So I really would encourage you to speak with your tax advisor and a trust in the state attorney if this is something that you're interested in to see if it applies and fits well into your personal financial plan. And you have charitable remainder trusts. There are two kinds, annuity trust and unit trusts where essentially assets are contributed to the trust from a charitable remainder. Annuity trusts assets are contributed to the trust, they pay a fixed annuity to non charitable beneficiaries and the remainder goes to charity at the end. Charitable deduction is taken when established and based on the present value of the remainder interest Charitable lead unit trusts they pay or CRUT as they're otherwise known, pay a percentage of the value of the trust to non charitable beneficiaries. And again, at the end of the trust term, the remaining assets get distributed to the charity.

There's also something called grant or charitable lead annuity trusts, otherwise known as claps with a clat. It's kind of the opposite of A and a crut. This is an income tax strategy and an estate planning tool where the donor puts an asset into a trust, a grantor trust, and they get a deduction up to a hundred percent of the asset value and the trust makes distributions to a charity for a specified period of time or charities. Non charitable beneficiaries get through a of the assets upon the trust's termination. Second polling question, what type of trust is set up to provide for a charitable annuity each year to a specified charity? Just a few other points with your class and your CRUT and your crats. I know they're not the nicest acronyms. There are income tax there consequences with these trusts. There's also gift tax impacts as well. So again, we would advise you to speak with your tax advisor or a trust and state attorney to learn more. Not sure how much more time we have.

Jessica Wolff:All. So our answer is, C, charitable lead annuity trust. 32.4% got it right. Alright, so some other options. Donor advise funds a lot of benefits here. They're easy to administer, they're easy to set up. They have a GI thresholds similar to public charities. Essentially you put the money in, then you can recommend your charitable preferences to the fund, but the fund is not required to necessarily follow your recommendations. I find that most of the time they do, but I have seen requests rejected for a myriad of reasons. Someone did ask if they are subject to distribution requirements. Currently they're not, but they are subject to IRS scrutiny and there is some potential future legislation that is hanging out there. The Accelerating Charitable Efforts Act was a bill that could introduce a distribution requirement within a set timeframe and if those distribution requirements are not met, then you would get hit with an excise tax.

I believe the proposed amount was 50%, but again, this is still hanging out there and not much has been done with it. And essentially this feature legislation is intended to standardize the definition of donor advise funds and bring them under the same regulatory framework as pension funds. It can also subject the donor advisor and sponsoring organizations to excise taxes if certain thresholds and requirements aren't met. But the goal essentially would be to ensure that the donor advised fund is being used to support charities rather than to just sit there and avoid minimum payout requirements such as required with private foundations.

I know Patty spoke a little bit about qualified charitable distributions and just so you know, a donor advised fund and private foundations are not qualifying charities for purposes of RMD qualified charitable distributions. Some pros and cons of donor advised funds versus private foundations. We get a lot of questions and people really gung-ho on wanting to set up a private foundation, not realizing the amount of time and effort that it takes to set up a foundation and to maintain it. So a lot of our clients do opt for a donor-advised fund, but don't necessarily let that deter you from having a private foundation. There are lots of benefits to doing that as well. Startup time for donor-Advised fund is immediate.

Most brokers have some sort of fund that they can easily open up. There are community funds. There are a lot of options. Private foundations can take a lot longer and the startup costs with private foundations can be substantial with your legal and accounting and other fees. Startup costs for donor-advised funds usually next to none. Administrative and management, again, with donor advised funds, you can recommend grants to charitable causes. Most of the time I find that those recommendations are followed, but it is possible that a request might be refused. With private foundation, you do get to manage your investments, your other assets, but there's record keeping, charity selections, administration of grants, filing of informational returns, board meetings, and the maintenance of the minutes of those meetings. The A GI limitations on charitable contributions for donor-advised funds 60% for cash, 30% for publicly traded securities. Private foundations, you don't get quite the same benefit with a 30% cash, 20% publicly traded securities valuation of contributions received for donor-advised fund, it's fair market value for private foundations. It's fair market value for publicly traded securities and cost basis for all other gifts. There are no grant distributions that are required. Like I said, currently for donor-advised funds, there is some pending legislation, again hanging out there for private foundations. There is a 5% of net asset value that is required to be distributed annually.

Taxes for donor-advised funds are none. I apologize. I'm not exactly sure what happened with this slide where it says 48 under private foundation, but private foundations are subject to a net investment income tax of 1.39% depending on the investments that are held by the private foundation. They could also be subject to unrelated business income taxes, which would then be either taxed at the corporate or trust rates depending on how the private foundation is set up. Again, that would be for active businesses and active business. That income is derived from within the private foundation. Just some other considerations. There's a little more privacy when it comes to the donor-advised funds, private foundations, the information is available to the general public, so trustees salaries, other personal information might be disclosed. There's little to no maintenance required with the donor-advised fund. A big benefit of a private foundation that a lot of our really high net wealth individuals like is that it leaves a personal and family legacy. It can involve multiple generations. It can maintain family ties deep in social consciousness, and there is a personal fulfillment aspect to it that really can't be explained nor can it be obtained by having a donor-advised fund.

The other benefit of a private foundation is it can hold alternative investments. Certain DAFs cannot, some can, some can't. You would want to check with your particular institution as to what their regulations are and what assets they're willing to hold. They're all different, but a lot certain institutions do not allow for alternative investments to be held in the account. Just a word to the whys for alternative investments held within private foundations, there are additional rules that can come into play with active excess business holding interests, self dealings, and some other scenarios. So before putting anything in a private foundation or contributing anything to a private foundation, run it by your tax advisor first to make sure that there aren't any unintended consequences of the contribution.

Before I leave you today, I just want to get everyone in the mindset since we are coming to year end about substantiation requirements. So typically organizations are not required to provide donors with a written acknowledgement if your cash contributions are under $250. However, a donor is required to keep substantiation for the donation, so you would want to keep a canceled check, a bank statement, a credit card statement, pay stub for any payroll deductions. It's a really good idea just to have these just in case there's some sort of audit or some sort of question that the IRS comes up with and you can provide them with the substantiation pretty quickly. For donations that exceed $250 organizations are required to provide you with a written acknowledgement and that should include the amount donated, whether or not there were any goods or services as a result of the contribution.

And these really should be kept for your records. Again, more things to keep in mind for substantiation requirements for donations left at Goodwill. Just keep a note when you donated, how much you donated, what you donated, take pictures of what you donated just in case it's ever questioned. And if you've gotten anything out of what I've said today, if you have a non-cash contribution that exceeds $5,000 other than publicly traded securities and some other items, get a qualified written appraisal. That concludes my portion of today's presentation. I would like to present Jen who will be speaking more about trust and estate and gift tax considerations.

Jen Joynes:Hi, I am Jen Joynes and I am a tax director in the Minneapolis office. And last but not least, we're going to be talking about some estate and gift tax considerations to think about before year end. Okay, so first to go over just a few exclusions and exemptions, the basics. So for 2024, the gift tax annual exclusion is 18,000 to each individual. But if you're a married couple, you can double that amount and give 36,000 per person for 2025. That amount will increase to 19,000 per person. And then a married couple has doubled that amount for 38,000. The gift end estate lifetime exemption amount is 13.6 million in 2024, and then in 2025 it's almost 14 million. The generation skipping exemption is the same with 13.6 million in 2024 and then 14 million 2025. The current gift and estate tax rate is 40%. And I also wanted to mention that if you give payments of medical or educational expenses directly either to the medical provider or to the educational institution, those are excluded from gift tax and don't count towards your gift tax annual exclusion.

Okay? So the big thing is that the TCJA, the tax Cuts and Job Act is set to expire. So if congress doesn't act, then the lifetime exemption is due to sunset at the end of 2025. And what this means is the lifetime exemption will reset back to $5 million, but that amount will be adjusted for inflation. So we're expecting it to be about $7 million, which based on my last slide and the amounts that I gave you is about half of what the lifetime exemption is currently. So to give you some quick examples of what that might mean, if we have a $20 million estate today in 2024 and we have the $13.6 million exemption, your taxable estate if you would pass away in 2024, would be about 6.4 million. If you take your estate tax rate at 40%, the tax on that would be about 2.5. So the remaining estate that would pass to your beneficiaries would be about 17.4 million.

Now let's look at 2026, the same $20 million estate, but the exemption has now decreased to $7 million. The taxable estate would be 13 million, and your estate tax rate would be at 40%. Your estate tax would be 5.2 million. So now the remaining estate passing to beneficiaries is only 14.8 million. So that's the difference of about 2.6, 2.6 less million that went to beneficiaries due to that reduction in the estate tax exemption. So the exemption is a use it or lose it type of concept. So if the gift tax exemption is not fully utilized while you're alive and the federal estate tax exemption is lower at your death, you don't get to retain the previously higher amount. So if the gift tax exemption is the 14 million and you didn't make any gifts during your life and then you pass away and the estate tax exemption is seven, you only get the seven at your death. But individuals who use the increased exemption now will not be taxed later year when the exemption is reduced. So using that excess exemption, the amount that's over that $7 million for gifts before it expires in 2026 will generally get a tax free transfer of those gifted assets and then also the future appreciation of those assets.

Okay, so if a taxpayer makes a gift of $5 million today when the exemption is around 14 million and then the exemption is reduced to 7 million at their death, they'll only have $2 million of exemption remaining. They don't get that extra exemption at death because they didn't use that excess amount. But if the taxpayer made a gift of the $14 million today and used all of their increased exemption amount, then the client effectively used their entire excess exemption and there would generally be no clawback of that exemption when it's reduced to the $7 million. I would like to note that portability rules still remain in effect post 25, which means that surviving spouses who previously filed a return a state tax return and filed for the portability election will retain that deceased's spouse exemption, so they would get their own exemption amount plus the deceased's spouse exemption. So higher net worth clients should consider gifting assets up to the current federal gift tax exemption before it sunsets in 2026. And I also wanted to note, don't forget about annual exclusion gifts each year. I know they don't go against your lifetime exemption, but annual exclusion gifts to anybody are unlimited. So this is a simple gifting method to reduce your taxable estate without any gift tax consequences.

Okay, so some ways to plan with a lifetime exemption and the GST exemption to use up those amounts. One, if there are family loans out there that are still existing, now would be a good time to forgive them and that would use up some of your lifetime exemption and possibly your GST exemption as well. If you have existing trusts out there, you could add more gifts or add assets and gift to those existing trusts and use your lifetime exemption. NGST. You could think about pre-funding and life insurance Trust. A life insurance trust is a type of irrevocable trust that holds life insurance, which ensures the grantor's life and then upon death those proceeds are not considered to be part of the grantor's taxable state. And with these life insurance trusts, they're also called islets. You can transfer an existing policy to the trust or you can purchase a new policy inside the trust and the trust is the owner and the beneficiary of the insurance policy.

So to pre-fund, you would put money into the trust to pay for future insurance premiums. So for example, you're expected to pay, for example, 1 million per year in premiums. You could put 5 million into the trust and that would pay for the premiums for the next five years. And then you would use a bulk of your lifetime exemption. You could also set up a dynasty trust. That's another estate planning vehicle which allows you to gift to your children and grandchildren. It's a type of trust that can last for many generations and this would allow you to use both your gift tax exemption and also your GST exemption. And you can also, if you have excess GST exemption that you have not used and you want to use that, you could consider allocating that to some existing trusts. So if you have some trusts around that are non-exempt for GST or you've created GRATS in the past that have terminated into remainder trust, you should consider allocating your excess GST exemption to those trusts. A portion of the non-exempt trusts equal to your available GST exemption can be split into a separate trust and then the client can allocate the remaining GST exemption to that separate trust. And this allows you to use your GST exemption without having to make any additional transfers to those trusts.

Okay, another type of way to use your gift tax exemption is to use a slat. It's a spousal lifetime access trust. And this is very popular one or both spouses set up a trust for the other spouse and then their children and grandchildren. So the grantor's spouse is named as the primary beneficiary of the trust and then can receive distributions of income and or principal from the trust for their lifetime. So this permits the donor spouse to give away their property, but then they actually retain indirect access through those spousal distributions. So when we see these set up, we typically see two slots set up, one for each spouse. However, if you're going to do that, you need to make sure that the trusts that are set up for each spouse are different because we don't want to run into it's, it's called the reciprocal trust doctrine.

And if the trust documents or if the trusts are too similar, the IRS could argue that you didn't make a gift at all. So what do we do to make the trust different? One is to have them have different trustees. Another is to consider drafting documents and making the gifts at totally different times. There could be different remainder beneficiaries. The trust can have different provisions. We just want them to be different. We don't want them to be done on the same exact day, all the same provisions and everything the same. We also run into issues. What if both spouses don't have enough assets to set up a trust for each other if we want to have a trust for each spouse? So what we can do is if one spouse is the wealthier spouse and has more assets, that spouse can gift assets to their spouse and those gifts are unlimited between spouses and then that spouse can add them to the trust. If we do this technique, we want to make sure that there's a cooling off period between those transactions. So the wealthier spouse would give to the other spouse and then they'd wait a little bit before contributing to the slat. And another thing to note about slats is they're generally considered grantor trust. So the donor spouse would pay the trust income tax instead of the trust, which would be another tax regift.

Okay, so we have poll number five which says when is the gift and estate tax exclusion or exemption set to revert back to 5 million or 7 million with inflation? So we'll give you a little bit of time to answer this and while we're answering the poll, so with the election and the new administration, we really don't know what's going to happen with the exemption. The TCEJ could be extended. I've heard talks that it could be extended but maybe not for the long 10 years that it was before. It could be four or five years. We really don't know what's going to happen. Maybe there won't be a complete sunset, but I'm sure we'll probably know in the next three to six months what's going to happen. But it's kind of up in the air right now. I'm not sure how much time we have left on the poll.

Jen Joynes:Alright. C is the correct answer. So 64.6% of you got it correct. Nice job. Okay, so what we should really be planning now rather than later, as I mentioned before, using up your lifetime exemption and GST exemption now instead of losing it in 2026 or perhaps earlier. So another idea is to swap your assets with your grantor trust. So consider substituting low basis assets for high basis assets and trusts and that would push your low basis assets into the client's estates to attain a step up a death. Also, when you're gifting, one thing we want to look at is whether is the basis step up because if you're gifting to a trust, you're going to lose that basis, step up since the client's not going to hold it at death. So what do clients do and what are they considering when gifting? So maybe if you're the fair market for your assets are in the 10 million range or if they're less than the exemption, maybe you'd want to consider doing nothing, you'd want to hold your assets for the basis, step up and do nothing right now.

If your assets are over the 30 million over the estate tax exemption combined, you would want to consider, you'd really want to look at some gifting, you'd want to talk to your tax advisor and consider gifting. If you're in that 10 to that $30 million range, this is the range where you'd really want to consider running the numbers. If you have some low basis assets, you may want to consider holding onto them at death to get the step up. Maybe you'd want to consider a slat. It's not a one answer fits all. It's not an easy answer. You need to run the numbers to consider the tax ramifications and also the estate ramifications. Maybe if you're in that 10 to $30 million range, you'd want to use up one of the spouse's lifetime exemption and keep the other spouses. You also want to think of your cash flow or your liquidity. You don't want to give away all of your assets and then not have anything for yourself just to use up the estate tax exemption. Another thing to think about is charitable requests, as we've talked about before. This slide here is just about interest rates. There are some planning techniques that are better for low interest rates environments. The interest rates now are higher. As you can see from the charts they've compared to back in November of 2021. Were much higher. And then polling question number six, when, what was the number of estate tax returns filed in 2023? So just take your best guess what you think.

Jen Joynes:Okay. Okay. It's actually B the 7,100, it's just an estimate, but 7,100 were filed and then around 3,500 were actually taxable states. So the rest were just filed for portability reasons and that is it. I don't know if Patty and Jessica, if there are some questions that you saw that you wanted to answer, I can start going through here.

Patricia Kiziuk:Yeah, I'll start. I definitely see a lot of questions about retirement plans and understanding IRAs of Roth. So that might be a great topic for a future presentation because there's a lot of questions that are coming out on that I guess in those questions. Somebody asked about what is a non-deductible IRA. So normally an IRA is deductible. Well to see if whether an IRA is deductible. There are certain rules. So one of the things that you look at is are you eligible to, are you covered by a retirement plan at work? And then there's income limits. So if you're covered in work and your A GI is over a certain amount, then you cannot deduct an IRA contribution. So what people do is they make a non-deductible IRA contribution. So they use after tax funds to contribute to that. So there's definitely a lot there.

I know a lot of also questions on the IRS online accounts. It's good you can authorize your tax provider for the information. You'll see notices in there payments, you create a payment schedule. So there's a lot of different things that you can do. But I guess one of the things that there's a lot of issues with identity pins, so your identity pin would be in there. So if you've requested an identity pin with the IRS, I saw a lot this year where we have returns that we filed the returns and we go to file that someone's tax return and we get our rejection saying the returns already been filed so that means that somebody has filed to use that social security number or maybe the social security number of one of the children or something. So it is happening quite a bit and this is where helpful to look at that to see what's going on there.

Also a bunch of questions regarding the 5 29 plans. If you do that rollover from a 5 29 to a Roth, it is for the same beneficiary. So you can't have the 5 29 for your child. You can't roll it into an account for yourself. So it really is meant to be for the beneficiary and it needs to follow all the different IRA requirements amounts and other things for the amounts. But with 5 29 plans you can take qualified distributions or for tuition, room and board and things of that nature. But it also applies to, I think we always thought of 5 29 is just for college, but 5 29 plans can also be used for tuition for elementary through high school as well. So they've really expanded what you can use 5 29 money for. So it's good to look at what's there. I tried to answer as many questions as I could online and I'm continuing to do so. And as Astrid noted, we'll go through some of those things. I'm not sure Jessica or Jen, if there's anything in particular you wanted to cover from the questions.

Jessica Wolff:I do see a few questions about charities immediately selling publicly traded securities. It generally does not matter if a charity sells the publicly traded stock that you donate. In fact, most do they liquidate these to you for their charitable purposes. The recapture that I'm talking about lies more with if you were to donate a firetruck to a horse farm that operates for underprivileged children. And I know that's extreme, but you find that more with bonafide non-cash contributions not publicly traded securities. So don't worry about that.

Patricia Kiziuk:I'm not sure if there's any other questions, but definitely I'm

Jessica Wolff:Not sure if either of you see any other questions that multiple people

Patricia Kiziuk:EisnerAmper website is really a wealth of knowledge. And I think if you'll see that article from Friday for the

Jessica Wolff:Person that commented that acknowledgements must also be contemporaneous. That is correct.

Patricia Kiziuk:But also double check out the personal tax guide. You'll be able to check the tax guide. It was published in March of 24. The next one will be published in March of 25.

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