What Year-End Tax and Family Matters should I Consider Now that it is November?

Truism #35: It is never too early to get your ducks in a row when it comes to your tax and family matters. That goes for looking after your aging folks, too.

The close of each year is a good time to reassess your tax planning before the calendar closes, to specifically include charitable giving.

Unfortunately, this time of year also brings out scammers who try to take advantage of kind-hearted seniors.

More on that later.  

As reported in a recent Arizona Republic article, titled “Time for seasonal planning for taxes, charities, more,”  there is little of note to report regarding major tax changes impacting individuals this year.

Nevertheless, the annual parade of "extenders" does give our elected officials the opportunity to look like they are working hard for the folks back home.

What are "extenders"?

They are those popular taxpayer-friendly provisions not permanently part of the tax code, but up for grabs (i.e., approval) each year.

This list includes a higher-education tuition and fees deduction, a mortgage-debt forgiveness exclusion, a classroom-expense deduction for teachers, and the optional deduction of state and local sales taxes in place of state and local income taxes.

The latter could impact your decision to make a big-ticket purchase before 2016.

Charitable IRA Rollover Planning

If you are a retiree who is age 70½ and older , then you likely are mindful of another extender that directly impacts your required minimum distributions (RMDs) from your retirement plan and your charitable contributions for 2015.

As in recent years, will you again have the option to donate your "taxable" required minimum distribution (RMD) for 2015 directly to charity instead of taking the RMD yourself as taxable income?

This approach is a great benefit to the charity (it pays no income tax) and it does not increase your marginal tax rate.

While we do not know the answer yet, we do know this: the IRS imposes a whopping 50% tax penalty on the amount of RMDs a retiree fails to take.

Ouch.

Capital Gains (and Losses), Etc.

While the rules regarding capital gains are pretty much the same this year as last, some folks will see some big losses for the first time in a while due to the late-summer swoon in the stock market.

Investors are always prudent to look at paper gains and losses in taxable accounts, with an eye on realizing losses before end of the year.

So, if your losses exceed gains, up to $3,000 of the excess can be used to offset ordinary income.

Additional losses can be carried forward to future years. 

Otherwise, taxpayers generally would be better off deferring taxable income to next year, if they can, while accelerating deductions so they can be taken in 2015.

However, that strategy may not pan out if you will have much larger deductible expenses next year.

If that is the case, then it might be prudent to group deductions into either this year or next, if you believe you are not likely to qualify to itemize both years. For example, charitable donations are one type of deductible expense over which the timing is easy to control.

Charitable Giving 

As you are evaluating the timing of your charitable gifts, first ensure that your gifts will actually count as "charitable" by conducting some research on the groups you are considering.

Look for non-profits with missions with which you agree and research their impact, such as the number of meals served, low-income homes built, or animals rescued.

Naturally, those non-profits that are efficiently run are better choices.

Is most of the money raised earmarked for programs or overhead (e.g., executive salaries and corporate jets)? 

Make sure the charity is for real.

You can check on the tax-exempt status of an organization by searching IRS Publication 78 online. 

Scammers Seek Seniors

Many seniors are susceptible to giving away their money for reasons such as fear, loneliness, or cognitive problems.

No surprise, scammers prey on these vulnerable folks. 

What are warning signs?

Some signs are obvious, like large, unexplained loans taken out by a senior or personal belongings that are missing.

Also, watch for large credit-card charges, gifts to a caretaker, routine bills not being paid, and changes to the person's will or other estate-planning documents. 

Obviously, sudden increases in spending and atypical, big withdrawals are red flags.

Another tip-off is a senior looking to buy risky assets that are out of character with his or her stated investment objectives. 

According to the original article, it can be a good idea for elderly folks to sign emergency contact forms authorizing a trusted adviser or two who can speak with adult children or other relatives in case of emergencies or if otherwise warranted.

Such authorizations need to be signed now, as later may be too late.

If you tarry, then account-privacy laws can stifle this type of essential communication.

With the holidays approaching soon, this is a perfect time to get your ducks in a row ... individually and as a family.

Contact an experienced estate planning attorney should you need any guidance with planning for year-end tax and family matters.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference:  Arizona Republic (October 23, 2015) “Time for seasonal planning for taxes, charities, more”