Why You May Want to Make Year-End Charitable Donations

The new tax law has been forecasted to result in $21 billion less in charitable giving in the coming year.  As an estimated, 95% of Americans will now take the standard deduction rather than itemize, few will see a tax advantage for charitable giving in the coming years. Therefore, it might be beneficial to make your charitable donations before December 31st.  

Charitable donations can include in-kind donations to the Salvation Army or Goodwill, as well as monetary donations to religious and other nonprofit organizations that qualify as 501(c)3 organizations under the IRS code. 

Another popular donation is a yearly membership. Some or all of the costs of memberships to organizations that qualify as nonprofit 501(c)3 organizations such as the Chicago Botanic Gardens, Children's Museum, Shedd Aquarium, and Lincoln Park Zoo among many others can be tax deductible. Often times, the cost of a family membership can pay for itself in as few as two visits for a family of four.  

Just remember to keep your receipts for these expenses in a safe place so that you can provide documentation for the tax deduction when you file your income taxes.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

            

If you have any questions regarding your personal taxes and other exemptions you may qualify for, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

The New 20% Deduction on Pass-Through income, What is It? And does it affect you?

There are many intricacies of the new Tax Act that will be discussed and analyzed over the coming weeks and months.  While some of the changes will allow for a tax reduction for "pass-through" entities, the complexities of the tax bill should be discussed with your tax advisor to make sure you understand how it affects you before you make any significant financial or employment changes.  For now, here are some of the guidelines that you should be aware of for the 20 percent deduction on pass-through businesses:

First, pass-throughs include sole proprietorships, partnerships, limited liability companies and S-corporations.  As long as the income of the business flows from the business and is reported on the taxpayer's individual income tax return, you are likely a pass-through entity. 

Second, if your taxable income is under $315,000 (for a married-filing-joint return), or $157,500 for a single person, beginning January 1, 2018, you may qualify to reduce your net domestic “qualified business income” with a 20% deduction. 

For purposes of this article, “qualified business income” means ordinary operating income of a trade or business, but would generally exclude capital gains/losses from trading businesses.  “Net” means qualified domestic business income less allowable deductions.

Your qualified business income may be active or passive, so it may include real estate activities.  Further, under the passive income category, dividends from REITs (Real Estate Investment Trusts) or qualified publicly traded partnerships (but not including capital gains or capital dividends) would qualify.

The 20% deduction will be taken AFTER arriving at adjusted gross income, but before arriving at taxable income.  But keep in mind that net qualified business income would still be subject to Self-Employment taxes and/or Net Investment Taxes, as applicable, before the deduction.

With that said, here is an example:

Rose is a single independent consultant who earns $100,000 a year after expenses.  Since Rose is a sole proprietor, she takes the money from her business as income rather than a salary.  This is what is known as "pass-through" income and it is taxed at personal income rates and is also subject to self-employment taxes.

If Rose takes the standard deduction of $12,000, her taxable income would be $88,000 ($100,000 - $12,000). She, therefore, qualifies to take the business deduction. She would then deduct 20% of her pass-through business income $100,000 x 20% = $20,000.  Her new taxable income would be $68,000 ($100,000 - $12,000 - $20,000).

Phase out rules for the deduction will apply to taxpayers with income between $315,000 and $415,000 for a joint return, and between $157,500 and $207,500 for a single person.

Finally, For taxpayers over these limits, income from service businesses will be strictly limited as to what will be considered qualified business income.  Most service business, other than engineering or architectural services, fall under the definition of being a “specified service trade or business.” If you fall under this definition, you do not qualify for the deduction if your taxable income is in excess of the limits.

The pass-through tax rules are new and can be complex, it is advisable to consult with your tax advisor to ensure that you are planning accordingly with the new tax law in mind.

If you have any questions related to how you and your business might plan ahead for tax efficiencies under the new tax laws, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Prepay your Property Taxes for 2017 Tax Deduction

With the likely passage of the Tax Cuts and Jobs Act, it is estimated that the majority of taxpayers who currently itemize their deductions will take the standard deduction for the tax year 2018.  

The reason for this change will be capping of State and Local Tax and Property tax deductions at $10,000.  A single individual will now have a standard deduction of $12,000; head of household $18,000; and a married couple filing jointly $24,000.  A single individual may still be able to itemize although it will be more difficult to exceed the standard deduction for head of household and married couples.

Due to this limitation for some, the payment of property taxes and income taxes may not be utilized in 2018.  Therefore it will benefit taxpayers who will be capped at $10,000 to make their first installment of their 2018 property tax bill by December 31, 2017 in order to include in their 2017 deductions.

If your mortgage company makes the property tax payment through escrow, you will want to notify them if you do make a payment so that the tax bill isn't paid twice. Further, if you are looking at making charitable contributions, it may benefit you to make those contributions before the end of the year as well. It is best to discuss this with your tax preparer to determine if it will be a benefit to you.

You can contact your County Treasurer to request to pay your first installment before December 31st or you can obtain your first installment property tax bill for the following counties in Illinois:

Cook County

Lake County

DuPage County

If you have any questions about tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Other Topics:

Are You Missing the Homeowners Exemption

Qualified Charitable Distributions From Your IRA RMDs

Charitable Giving to 501(c)(3) Organizations

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Year-End Gifting

With the holiday season approaching, people may be looking to make gifts to family and loved ones beyond the typical holiday gift. Gifts can come in all sizes and shapes and some may wish to make a more substantial gift than a new sweater.  An individual can make a lifetime gifts of up to $5,450,000 without ever having to pay gift tax.  While most individuals would never imagine making gifts of such amounts without winning the lottery, Gift Tax Returns are required for any gifts made over the annual exclusion amount ($14,000 in 2017 and $15,000 in 2018). 

Each year you are allowed to gift up to a certain amount per an individual without having to report the gift on a gift tax return--the annual exclusion. In 2017 the exclusion amount was $14,000 and that the amount will be increased to $15,000 in 2018. Couples can gift up to $28,000 per an individual in 2017 without having to report it on their taxes, an option known as gift splitting.

Education Exclusion: You may pay for education expenses of an individual and they do not count towards the annual exclusion as long as they 1) are paid directly to the institution providing the education, and 2) must be for tuition only. 

Medical Exclusion: You may also pay for medical expenses for someone and not have it count towards your annual exclusion as long as the payments are 1) made directly to the medical provider, and 2) the medical expenses qualify under the "medical care" requirement for deductions for income tax purposes. 

Downpayment for a home: A common gifting scenario is a parent or grandparent helping out with the down payment for a home so that the gift recipient does not have to pay mortgage premium insurance.  This may require a gift letter but can be a significant assistance for someone looking to purchase their first home. (These gifts are subject to the same gift tax laws and do not qualify for a special exclusion.)

If you wish to gift more than $14,000 to a person but do not want the added hassle of filing a gift tax return, the 4th quarter (end of the year) provides you with an opportunity to make two gifts, one at the end of 2017 and one at the beginning of 2018. By doing this, you can gift up to $29,000 (or $58,000 if a married couple) to another person without having to file a gift tax return.

If you gift to any one person an amount over the annual exclusion in a given year, you will have to file a federal gift tax return (Form 709). This will begin a lifelong, running total to keep track of gifts that you make that are over the annual exclusion. Once you have made gifts exceeding the amount you are allowed to give away in your lifetime ($5,450,000 in 2017 per the Internal Revenue Service), you will then owe a gift tax on the excess amount.

If you have any questions about gifting and other tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Other Topics:

Do I Owe on an Inheritance or Gift?
Qualified Charitable Distributions From Your IRA RMDs
Charitable Giving to 501(c)(3) Organizations

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.