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Tools for year-end charitable contributions: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Two tools for clients planning year-end charitable contributions
Taxpayers who are planning for charitable donations this year-end should consider bunching their donations or using a donor advised fund to maximize the tax benefits, an expert for Kansas City Journal writes. Clients who are at least 70 1/2 have the option of donating directly from their IRAs to a charity through a qualified charitable distribution. The QCD will be counted towards their required minimum distributions without owing any taxes on the withdrawal. “With the current strong stock market, a donation of long-term appreciated securities continues to be one of the most tax advantageous ways to give,” an expert writes. “By transferring the securities to a charity, you avoid the capital gain and also get the charitable deduction for the contribution.”


What clients need to do before this tax strategy disappears
Clients have until October 15 to undo their Roth conversion done in 2017, with this investing move no longer allowed beginning this year thanks to the new tax law, according to this article on CNBC. Recharacterization of a Roth conversion from traditional IRA is a great option if the converted assets decline in value and trigger substantial tax liability. "It's not the worst thing in the world. You still have a Roth. But if you want to give it one more look to see if the conversion worked out, this is your chance and the window is closing,” according to IRA expert Ed Slott.

Will your clients’ Social Security taxes go up next year?
Although the amount of income subject to Social Security tax is capped using the Social Security wage base, payroll taxes are likely to increase next year as the wage base is expected to increase, according to this article on Motley Fool. The wage base increase would mean no substantial payroll tax increase for low-income workers. However, for high-income workers, the wage base increase could mean a $400 jump in payroll tax.

This new tax break can make a big difference for small business owners
The IRS has issued regulations for the implementation of the 20% deduction for qualified business income from pass-through entities created by the new tax law, according to this article on MarketWatch. Businesses eligible for QBI deduction should meet the definition found in IRS Code Section 162. Limitations for the tax break also start to phase in when the taxable income is more than $157,500 ($315,000 for joint filers).

What some clients tried to claim on their tax returns shows they often don't know much about accounting.
February 5

Important tax changes for REIT investors
Thanks to the new tax law, real estate investment trust investors now qualify for a tax break on their "nonqualified" dividends, as the income is considered tax deductible pass-through income, according to this article on ETF Daily News. Other investment options that offer significant tax savings are municipal bonds and closed-end funds. Moreover, qualified dividends are subject to a more favorable tax rate than ordinary income.

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