Tis the Season for Tax Savings

With the holidays right around the corner and the year winding down, it’s easy to get caught up in holiday shopping, get-togethers, and last-minute plans. Many taxpayers also find themselves scrambling to take advantage of last-minute tax saving opportunities before the new year. The good news is that there are still several strategies you can implement to reduce your tax burden and kick off the new year with a little extra holiday cheer.

Maximize Retirement Contributions

One of the easiest and most effective ways to reduce your taxable income and help build a stronger financial future is by contributing to retirement accounts. Pre-tax contributions made to 401(k) and 403(b) plans made before year-end are deducted from your taxable income, which in turn will offset some of your tax bill. For 2024, the contribution limit is $23,000 (or $30,500 if you’re 50 or older).

Additionally, consider making contributions to an Individual Retirement Account (IRA); the limit for this type of account in 2024 is $7,000, or $8,000 if you’re over 50. The type of IRA you choose depends on your financial situation – either a Traditional IRA or Roth IRA. Contributions to Traditional IRAs can reduce your taxable income (subject to income limitations) and defer the income tax to when you withdraw the money for retirement. Roth IRA contributions do not offer an immediate deduction on your return but allow you to make income tax-free withdrawals in retirement.

Tax-Loss Harvesting

If you’ve sold investments throughout the year and realized gains, now may be a great time to offset those gains by selling losing investments in your taxable accounts. This strategy, called tax-loss harvesting, allows you to use losses to reduce your taxable income.

For example, if you have $5,000 in gains and $3,000 in losses, you can offset the $3,000 loss, and only pay taxes on $2,000 of net gains. If your losses exceed your gains, you can deduct up to $3,000 of the remaining loss from your ordinary income. Just be mindful of the wash-sale rule, which prevents you from claiming a loss if you buy the same or substantially identical security 30 days before or after the sale.

Contribute to a Health Savings Account (HSA)

If you’re enrolled in a High Deductible Health Plan (HDHP), a Health Savings Account (HSA) is a powerful tool to reduce your taxable income. HSA contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualifying medical expenses are also tax-free. In other words, an HSA offers a triple tax benefit, making it one of the best last-minute tax strategies.

In 2024, you can contribute up to $4,150 for individual coverage and $8,300 for family coverage. If you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution.

Charitable Giving

Giving to charity not only helps those in need but can also provide a significant tax break. If you itemize your deductions, charitable contributions made before year-end can reduce your taxable income. You can donate cash, goods, or even appreciated securities. Donating stocks or mutual funds that have increased in value can help you avoid capital gains taxes on those gains.

If you are 70½ or older, you may also want to consider making a Qualified Charitable Distribution (QCD) from your IRA. This allows you to donate up to $105,000 directly from your IRA to a charity without having to pay income tax on the distribution. Not only does this give you a charitable deduction, but it also counts toward your required minimum distribution (RMD).

These are just a handful of potential deductions you still have time to make use of before the end of the year. To make sure you’re taking full advantage of every opportunity, consider reaching out to your Certified Public Accountant, who can help you uncover the best strategies tailored to your unique financial situation. Wishing you very happy holidays and a prosperous New Year!

Megan Williams, CPA is a Senior Staff Accountant for Keller & Associates CPAs, PLLC.

Published in the Victoria Advocate. 

Better Than To Receive

The Victoria Bach Festival recently concluded its 49th season, marking another year of exceptional music. As the current President of this enduring organization, I am filled with pride as we prepare for our 50th season next year—a milestone that coincides with my 10th year on the board. Contributing to a cause greater than oneself is a profoundly rewarding experience, and I am grateful to be part of a firm that encourages community volunteering. Through my time volunteering, I have never ceased to be amazed by how generous the people of Victoria can be. While it is noble to give without the expectation of anything in return, your charitable acts may have an even greater impact when done tax-efficiently. Here are some strategies to consider for your next charitable contribution:

Donate Appreciated Stock

They say giving is better than receiving, especially when you can give away a tax bill at the same time! If you have an appreciated security, you can donate the investment directly to a charity. By doing this, you can effectively wipe out the imbedded capital gains tax bill that would have been owed upon the sale. The charity benefits from the full value of the donation, and you may still be eligible for a deduction if you itemize.

Give your RMD

Required Minimum Distributions (RMDs) from IRAs have been a moving target with recent legislative changes. The SECURE Act of 2020 and SECURE Act 2.0 have shifted the beginning RMD age, but the age for Qualified Charitable Distributions (QCDs) from IRAs remains at 70½. A QCD allows individuals to donate directly from their IRA to a charity without incurring tax on the distribution. This is a fantastic way to support a cause and reduce your taxes, provided the funds go directly to the charity and you are 70½ or older (not just reaching 70½ sometime in the year) at the time of the transaction.

Leave your bequest from your IRA

Instead of leaving a charitable bequest in your will, designate a charity as a beneficiary of your IRA. While your heirs would owe taxes on IRA distributions, charities do not. This simple update can reduce potential tax liabilities for your heirs.

Bunching Donations

The Tax Cuts and Jobs Act (TCJA) doubled the standard deduction, which now stands at $14,600 for single filers and $29,200 for married couples filing jointly in 2024. This change made fewer people able to itemize deductions. One effective strategy is to “bunch” donations, making two years’ worth of contributions in one year to surpass the itemization threshold. For instance, donate in January and December of the same year. This strategy may push you over the threshold to itemize every other year, and still receive the standard deduction in the years you are not itemizing.

The Joy of Giving

Beyond the tax benefits, the act of giving has been shown to enrich the giver’s life with joy, improved health, and a stronger sense of purpose. While these strategies may enhance the impact of your donations, the true reward lies in the act of giving itself. For personalized advice, consult a CERTIFIED FINANCIAL PLANNER™ professional who can help you plan efficient and impactful giving.

 

Published in the Victoria Advocate. 

David Faskas CFA, CFP® is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of Keller Wealth Advisors.

Financial Stewardship

Easter is one of my favorite holidays, perhaps even more than Christmas. The resurrection story brings me so much hope and refreshes my convictions each year. One such conviction is financial stewardship.

Matthew 6:24 tells us, “No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money.”

Later in the book of Matthew, The Parable of the Talents tells of a master who is leaving his house for a long time. He entrusts his property to three servants, according to the abilities of each. The first servant receives five talents, the second receives two talents, and the last receives one talent. (A talent is an ancient form of currency). When the master returns, he asks for an account of the property he had entrusted them. The first and second servants explain that they put their talents straight to work and doubled the value of what they were entrusted with, and so each is rewarded by his master. The last servant, having been afraid, buries his talent in the ground and returns the single talent to his master. The master chastises him, declaring the servant should have invested the talent with the bankers where at least it could have earned interest, rather than burying it. He then commands the single talent be given to someone who could turn it into abundance and casts the unprofitable servant out. Ouch!

As a financial advisor who encourages others to save and invest, I wrestled with Matthew 6:24 for years. What I’ve grown to learn though is that this verse speaks to the love of money, or greed. It is the Parable of the Talents that speaks to the management of money – financial stewardship. Consider both portions of scripture together and you can see that it is not how much money you have that matters; it is how you manage it.

Consider the act of giving. Contributing to a purpose greater than ourselves provides the ultimate form of fulfillment. Because we are all dealt different lots in life, the uniqueness of our financial situations should be accounted for in financial stewardship, including our abilities to give.

If you start with only a little and do not manage your resources wisely, then how can you ever be charitable? If you have debt, good financial stewardship may look like prioritizing paying off debt so that you can have the financial freedom to put future resources to work. It is difficult to be charitable if you are a slave to debt. Remember you can also be giving of your time!

And if you are wealthy, yet you hide your talents in a hole, then what can you say for how you handled the resources you were entrusted with? Having more money means there is more to be responsible over. Like the master who went away, it is okay to entrust someone with the management of your resources. Choose your servants wisely, however, so that your resources are put to work and not sitting idle. By entrusting the right professionals, strategic financial and tax planning could potentially enhance your charitable endeavors!

No matter your level of resources, if good financial stewardship is something you desire, working with a CERTIFIED FINANCIAL PLANNER™ professional to create a plan is a great place to start. To find a CFP® professional that offers services unique to your individual needs, you can visit letsmakeaplan.org.

Published in the Victoria Advocate

Hannah Gohmert, CFP® is the Chief Compliance Officer of KMH Wealth Management, LLC.

 

The Cost of your Lifestyle

There is a saying that encourages you to know where you have been to know where you are going. Or, as William Wordsworth more eloquently said “Life is divided into three terms – that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future”. To know what we want in our future experiences, we should know the cost associated with our prior experiences.

This resonated with me as I am slowly retiring and Lane, my husband, will be retiring in the future on his own terms. We have used a personal finance software product for most of our marriage to help us record our expenses and banking transactions. The software also includes budget planning and the ability to measure progress against it. We have loosely used that feature but know it is an excellent way to review prior expenses.

Lane and I have both shared the task of entering data over the years. We have categorized expenses differently. For example, I will categorize a gift to a child as “Gifts Given” and tag with a child’s name. Lane will categorize as “Missy (or one of the other three children) Gifts Given.” This is a problem when pulling a report because not all the gifts associated with a child are in one neat, concise report.

These reports matter. Deductions such as property taxes, medical expenses, charitable gifts and gifts given in general have potential tax considerations and a possible gift tax return filing requirement. Therefore, last month I sat down and re-categorized all the expense categories, including gift categories. Every expense is on the same playing field now, and the reports are more effective in showing us what has been important in our lives. (Too bad there is not a deduction for the clothing category, unless you donate them to charity.)

Another situation was Lane’s definition of a gift to a child. He thinks, being a CPA, I should input the child’s part of dinner as a gift when I take one out to dine. My definition is when we make a monetary Christmas gift to them. Those two definitions are miles apart, so we compromised on a minimal financial number that was worthy of being considered and recorded as a gift.

The annual federal gift tax exclusion for 2022 allows you to gift up to $16,000 to as many people as you wish without those gifts counting against your $12,060,000 lifetime exemption. There are other gifts that are exempt from the federal gift tax. Reviewing your total gifts made during the year can help determine if you are or are not required to file an additional tax return.

Analyzing and learning from our past experiences and expenses help us to profit in the present and live better in the future, as the aforementioned quote suggests. Organizing financial data gives us concise snapshots of past experiences; experiences that may continue, evolve or discontinue.

For more information about gifts and the tax repercussions contact a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNING™ professional.

Published in the Victoria Advocate

Phyllis Keller, MBA is the Information Security Officer for KMH Wealth Management, LLC and Keller & Associates CPAs, PLLC.

One CPA’s Thoughts on Charitable Giving

I always think of my parents when I think about charitable giving or serving for that matter. My parents were generous people that encouraged us to think in terms of becoming generous adults. “You will never miss the money that you give to the church,” Dad used to say. Not sure that is an original saying, but he said it to us kids and you know, I’ve never missed the money we have given to the church or to charity.

I have always admired and been amazed by the clients I have worked with over the years that prioritized their giving, not for tax reasons, but because they felt it was their obligation. Many never realizing any additional tax savings because the 10% of their gross income or more that they gave was not more than their Standard Deduction already allowed to taxpayers.

Speaking of the Standard Deduction, in 2021, that amount is $12,550 for single filers and $25,100 for married couples filing jointly. What that means is if your medical expenses, taxes, home mortgage interest, charitable deductions and a few other items exceed the number above, and you itemize them on Schedule A of your Form 1040, your taxes will be reduced. Important point to remember, it is not dollar for dollar. Even if you don’t itemize, you can still deduct up to $300 ($600 if you are married filing jointly) of direct cash gifts to public charities in addition to the Standard Deduction amount.

So, in addition to cash contributions, let’s review a couple of charitable giving options to maximize income tax deductions. Year-end is upon us and by the time this article is published, hopefully you have done your planning, but if not you will need to consider and implement some straight forward planning that can be done quickly.

Consider donating appreciated securities that have been held for more than one year, rather than cash. The market has done well and instead of selling appreciated securities to make cash contributions that generates a taxable gain, many charitable organizations accept donations of stock instead. You get a deduction for the full fair market value of the security and the charity sells the security and receives the full value at date of sale with no taxes paid on the gain.

For larger gifts, opening and funding a Donor Advised Fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and also the ability to dole out those funds to charities over future years. The fund can be added to over time and is a good way to bring your children into charitable planning as you make decisions on gifts from your fund. There are several good options here. One you can look at as an example is Vanguard Charitable.

Give your CPAs and financial planners a call to discuss your options. Time to stop putting things off and do some charitable planning that works for you. Do something special this year and set the example of generosity for your family. So, good cheer to all! Have a Merry Christmas and a Happy and Prosperous Holiday Season and New Year!

Published in the Victoria Advocate

Lane Keller CPA/CFP® is a managing member of Keller & Associates CPAs, PLLC and KMH Wealth Management, LLC.

Intentional Giving is Heartfelt

As the season of giving is upon us, let us remember that the best gifts are those given from the heart. Gifts always mean so much more when they are given intentionally.

My husband and I have three small children. It only took a few years of parenting for us to realize that new toys quickly lose their shine and become stress-inducing household clutter. After a few chaotic Christmases, we needed a solution. Together, we put an intense amount of thought into how we want to gift and have adopted a strategy that brings our children year-round joy without the waste and clutter.

Santa has children all over the world to deliver gifts to, and we want our children to know that Santa treats all the kids on the nice list equally. So each of our children receive four gifts from Santa, (something to wear, something to read, something they want, and something they need). As Mom and Dad, we gift our children experiences rather than toys. For us, that includes a family pass to The Texas Zoo, The Children’s Discovery Museum, The Texas State Aquarium, and other local attractions. Likewise, we encourage our friends and family to do the same when giving gifts to our children. Fishing on Coleto Lake with Grandpa and performances at Theatre Victoria with Grandma are memories that last a lifetime, unlike toys. Thanks to our thoughtful planning, we now enjoy less clutter and more joy that extends far beyond the Christmas season.

Charitable giving is owed the same, deep level of thought and should be considered as a part of your year-end tax planning. If you itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. With the right preparation, the tax benefits associated with charitable giving may even potentially enhance your ability to give. For example, consider a charitable gift of $1,000. At a 32% tax rate, you may actually be able to give $1,471 to charity [$1,000 ÷ (1 – 32%) = $1,471; $1,471 x 32% = $471 taxes saved].

If you can control the timing of income and expenses, then try to time your recognition of income to be taxed at the lowest rate possible, and time your deductible expenses to be claimed in years when you are in a higher tax bracket. If you expect to be in a higher tax bracket next year, making a charitable contribution the following January instead of this December will allow you to take the deduction next year, resulting in a greater tax benefit.

Make sure you keep records of all of your charitable gifts in the form of bank statements and written confirmations and avoid being scammed by only dealing with recognized charities. Visit irs.gov and use the Tax Exempt Organization Search tool to check the status of any charities you are considering gifting to.

Gifts of all kinds, whether to children or to charity, truly have the potential to go much further when they are given with intention. Together, a CERTIFIED FINANCIAL PLANNER™ professional and a CPA can help you develop an intentional plan for your charitable efforts that works for you and your unique financial goals.

Published in the Victoria Advocate

Hannah Gohmert is a CERTIFIED FINANCIAL PLANNER™ professional and the Chief Compliance Officer of KMH Wealth Management, LLC. She has been with the firm for nearly 5 years.

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