By FLPutnam

Improving one’s finances and improving relationships are two very popular New Year’s resolutions. We can’t help with the latter, but we do have some tips on improving your relationship with your finances, starting with your taxes.

Income tax filing gets more complicated every year. Keeping up with even minor changes in tax laws that could benefit you is difficult. Forms need filing (or organizing for your tax preparer), sometimes amended forms follow, complicating everything. Here are some tips to help you make tax filing less of a chore:

Beat the Buzzer. Try to get most information to your tax preparer by mid-March. Make a list of the information you have provided and list additional items for which you do not have final information yet. Being organized and getting information to your preparer early could keep you on that “great client” list. Not having to file for an extension will keep additional charges off your bill.

Some things your tax preparer would need to know:

• 529 Contributions: Tax form 1099-Q will tally distributions from 529 plans but there is no such form for contributions. It’s up to the taxpayer to notify their tax accountant. The 529 year-end statement will reflect any contributions made during the year.
• Qualified Charitable Distributions (QCDs): Without specific knowledge, a tax preparer may presume the entire IRA distribution is fully taxable. Provide your tax preparer with a list of your contributions and the amounts.
• Contributions to an IRA account: Depending on when the contributions were made, the Form 5498 may not be issued until after the April filing deadline. This could lead to missed deductions or an incomplete Form 8606.
• Dependent Care Tax Credit: Notify the tax preparer of expenses paid for daycare, babysitter, summer camp, etc.

Resolve To:

Start a Tax File Now for 2024.

Whether on your computer, in your email program, or in your desk drawer, start a 2024 folder.  File tax docs immediately as they come in.  Save things like receipts for charitable donations, home improvements and/or new large appliances (some states offer tax rebates on certain items), and closing documents from real estate transactions. Note medical mileage on medical receipts, if that applies to you. Keep a running tally of gifts given to others.

Educate Yourself on Current and Soon-To-Be-Updated Tax Laws.

There is a lot to keep straight, including tax rates, RMDs (Required Minimum Distributions from your IRAs), capital gains rates, and thresholds for anything from IRA contributions to IRMMA (Medicare Part B impacted) brackets. Talk to your financial planner and tax advisor about how to stay within a particular bracket for 2024.

Figure Out If You Are a Pay Now or Pay Later Person

ROTH conversion or contributions to your taxable accounts? Both have benefits. Ask your advisor to run a projection showing the “pay back” time for additional tax (and potential additional costs like IRMMA or NIIT) you will pay in 2024. Consider your current tax bracket and what could happen when tax rates re-set for 2026.

Let’s Talk About Gifting

Grandkids: 529 plans are a popular option for grandparents looking to support their grandchildren (or other beneficiaries) with education expenses. A grandparent-owned 529 plan, with the student named as beneficiary, is not intrinsically reportable on or factored into financial aid applications. Factoring in tax-sheltered growth and deductible contributions in some states, funding grandparent-owned 529 plans is an attractive and powerful way to make educational gifts. While the SECURE 2.0 ACT is not yet set in stone, one of the new provisions for 2024 allows for unused 529 plan money to be converted to a ROTH IRA for the child’s later benefit. The rules are complicated. Watch for a blog about how to do this later this year.

Adult children: Expected changes effectively cutting the estate tax exemption in half in 2026 have made large gifts to adult children more interesting than ever.  Currently you can gift $18,000 per person without using any of your estate tax exemption.  Many are now considering larger gifts for their adult children, what those should be, and the best way to make these gifts. Some interesting options include less-liquid assets that may also be hard to value like land, family business stock, or collectibles. Gifts can be outright or in trust and it is important to involve your estate attorney in both the planning and execution of these transactions. Just like many other professionals, estate planning attorneys are currently remarkably busy. It is a good idea to have some early discussions with both your financial advisor and your attorney.

Charity: What is the best way to give to charity? If you are over age 70 1/2, using QCDs from your IRA is usually the most effective way to give. The gift must be to an individual charity and not to a donor advised fund. There is no tax on the distribution from the IRA but also no corresponding tax deduction. If you are subject to RMDs (RMDs begin this year at age 73) the QCD counts toward your RMD but is not taxable. Another way to give is low tax basis stock gifts. Your charitable deduction is the full market value (FMV) of the gift on the date of transfer. The FMV tax deduction is for investments held for at least one year. Short-term positions are only eligible for a deduction of the cost basis opposed to current FMV. The capital gain on the stock is not reportable as income.

Final Word

Navigating the ever-changing tax code landscape is a daunting task for anyone. Schedule some time with your advisor, your estate attorney, and/or your accountant to discover what’s new, what’s expected, and how these changes could affect your estate.  Questions? Contact your FLPutnam advisor.

Disclosures