By Deb Steinbuch and Jim Friedman

It’s time. As you know, year-end is typically the best time to consider your financial and tax planning strategies. And after this year’s tumultuous election season, it may be more important than ever to meet with your advisors to review your investment portfolio and consider tax, financial, and charitable giving strategies before December 31. No one knows for sure what the Trump administration and the 115^th Congress will do, but political actions next year will impact the general business and investment climate and could impact your situation.

Income Taxes: The top tax rate for 2016 is 39.6 percent for those with taxable income over $466,950 ($415,050 for individuals). This top rate can go even higher due to the phaseout of itemized deductions and additional Medicare taxes including the 3.8 percent Medicare tax on investment income above a certain threshold, and the additional .9 percent wage tax.

Both the Trump administration tax plan and the House Republican “Better Way” tax plan call for reduced income tax rates for individuals and businesses. Both propose to lower the top tax rate to 33 percent at a significantly lower taxable income level (approximately $230,000) as well as eliminate the supplemental medical-related taxes. In addition, both plans would eliminate the alternative minimum tax.

Observation: Tried and true year-end tax strategies generally revolve around shifting some tax burden to a future year. Deferring receipt of a bonus payment to 2017, accelerating deductions into 2016 by prepaying a deductible expense, or making larger charitable gifts all can lower this year’s bill, which leaves those saved tax dollars in your pocket rather than the government’s. Keep in mind however, that you need to factor in the application of the alternative minimum tax to determine if shifting income and deduction strategies provide maximum savings in your financial situation.

Observation: As it pertains to charitable giving, reducing the income tax rates could increase the after-tax cost of a gift. For example, the after-cost of a $1,000 gift for a donor who can benefit from the charitable contribution deduction and is in the top tax bracket is $600. If the top tax rate is reduced to 33 percent, the after-tax cost of that gift would be $670. If you are considering a large gift, it could make sense from a tax perspective to make the gift before year-end. 

Observation: Keep in mind that for those who itemize their deductions, gifts of cash are fully deductible, up to 50 percent of adjusted gross income. Any excess can be carried forward and could be deductible for up to five years. As your Federation philanthropic advisers, we are available to work with you to determine the best strategies in your situation.

Investment Assets: Once again this year the stock market was volatile and it always makes sense to review your investment portfolio and consider timing the recognition of capital gains and losses for assets held long-term (more than one year) and short-term to smooth the impact of market fluctuations. Part of that review could be consideration of a gift of appreciated securities because you can avoid paying any capital gains tax on the value of securities transferred to the Federation, and you may be able to receive a charitable contribution deduction for the full fair market value of the securities at the time of the gift.

Observation: Remember that gifts of appreciated assets are fully deductible up to 30 percent of adjusted gross income. Again, any excess can generally be carried forward and be deductible for up to five years.

Observation: Donating appreciated stock to either create a donor-advised fund at the Jewish Federation or adding such securities to an existing donor-advised fund is an excellent way to maximize tax savings from such gifts as well as provide you with a vehicle from which you can make recommendations for future charitable grants.

Observation: Remember, however, in cases where the current fair market value of the stock remains below your cost basis, it most likely makes sense to sell the stock first, recognizing the tax loss, and then gift the proceeds to charity.

IRA Charitable Rollover: Over the past ten years, many individuals over age 70 ½ have utilized the IRA Charitable Rollover to transfer up to $100,000 each year from their retirement accounts directly to public charities, such as the Federation. (Note: transfers to donor-advised funds, supporting organizations, and private foundations do not qualify.)

Observation: Congress finally made the IRA Charitable Rollover a permanent part of the tax code last year. This important charitable giving incentive can also be used to designate the distribution directly from your retirement account for a specific use at the Federation, including the annual campaign, a Lion of Judah endowment, or some other special endowment fund.

Estate Taxes and Lifetime Giving: Both the Trump tax plan and the “Better Way” plan propose to make significant changes to transfer taxes. Both would repeal the estate tax. Such changes, if enacted, could dictate modifications to estate and bequest planning, as well as lifetime gifting strategies.

Observation: We will all wait and see. Whatever the new year brings, Federation endowment professionals remain available to work with you and your other professional advisors to maximize the benefits of these and other tax planning strategies for you and the Jewish community.

(This letter is for informational purposes only and should not be construed as legal, tax or financial advice.   When considering gift planning strategies, you should always consult with your own legal and tax advisors.)

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We would be glad to be of help. Please feel free to contact us with any questions you might have.  —Deb Steinbuch and Jim Friedman (contact info below)