Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
March 2015 Tax Newsletter
What's New in Finances:
Gifting Appreciated Stock Can Result In Two Different Tax Treatments
Here are a few things to consider when making gifts of appreciated stock.
If you are gifting to a qualified charity, you get a deduction for the fair market value of the stock even though your basis (cost) is less than the current value. When the charity sells the stock, there are no taxes due since qualified charities pay no taxes on contributions they receive. This is a win-win for both parties since the donor also pays no taxes on the appreciated value of the stock.
If you are making a gift to an individual, the rules are different. The one who receives your gift also takes your basis (cost) and holding period as his own. When he sells the stock, he will report the gain on his income tax return. If the recipient is in a low enough tax bracket, there may be no tax on the gain.
Take this example. Let's assume you purchased $2,000 worth of XYZ stock four years ago that is now worth $10,000. If you gift that stock to a qualified charity, you will get a deduction for $10,000, completely avoiding tax on the $8,000 of built in profit. If you gift the stock to an individual who sells it, he or she will report a gain of $8,000 on their income tax return. The tax, if any, is determined by the recipient's income tax bracket.
Which stocks you gift away, which stocks you sell, and those which you hold for another time should be determined by your long-range financial plans. Contact us for assistance in determining the best tax advantage of selling or gifting stocks.
Some Interesting IRA Numbers
The IRS reports some interesting numbers on IRAs. Here are a few:
At the end of 2012, U.S. taxpayers held $5.3 trillion in IRAs.
Traditional IRAs accounted for $4.6 trillion of that amount; Roth IRAs accounted for $403 billion. SIMPLE plans were valued at $72 billion, and SEPs had a value of $272 billion.
$1.4 trillion of the value in traditional IRAs was held by taxpayers with an annual income between $100,000 and $200,000. Taxpayers earning between $50,000 and $100,000 a year held $1.2 trillion in IRAs.
In 2012, 3.7 million taxpayers contributed to traditional IRAs, and 5.5 million contributed to Roth IRAs.
What's New in Taxes:
Health Care Law Adds New Forms To Tax Filing
The "Affordable Care Act" will add some new tax forms to 2014 tax returns. While most taxpayers will simply need to check a box on their tax return to indicate that they had health coverage for all of 2014, others will have to provide other information.
Among the new forms:
* Form 8965 is used to report a Marketplace-granted coverage exemption or to claim an IRS-granted exemption. A worksheet in the Form 8965 instructions is to be used to calculate the shared responsibility payment.
* Form 8962 is used to reconcile advance payments of the premium tax credit or to claim this credit on the tax return.
* Form 1095-A is the form sent to taxpayers who purchased coverage through the Health Insurance Marketplace. This form will help them complete Form 8962.
The IRS encourages taxpayers to visit irs.gov/aca for more information about the Affordable Care Act and filing their 2014 income tax return..
Adjust Your Tax And Financial Course For 2015
Were you less than satisfied with your financial situation at the end of 2014? If so, making tax-smart decisions in 2015 could provide a helpful course correction.
Here are some suggestions to get you started on the right path.
* Get structured. That out-of-control feeling from last year might be due to a lack of organization. Set up a simple filing system to arrange your tax papers and records. Once you're organized, review your monthly expenses and establish a budget you can live with. Online tools can help make that job much easier, or you can give us a call. We'll be happy to help. Next, take your planning a step further and create an emergency fund. Consider setting aside six months of living expenses in an account you can tap easily.
* Be strategic. Examine your investment portfolio for potential tax savings, such as selling stocks that are worth less than you paid to offset your capital gains. You might also donate appreciated stock that you have held for more than one year to charity and avoid capital gains altogether. With the new tax on unearned income to watch out for, consider buying investments that pay tax-free income, such as municipal bonds.
* Look again. Some everyday tax moves deserve a second look. Review your employer's list of benefits to make sure you are making the most of them, including the lesser-known perks, if available, such as flexible spending accounts, commuting reimbursements, and employer-paid college expenses. If you have a qualified high-deductible health insurance plan, consider the benefits of a health savings account. This is also a good time to analyze your tax withholding and estimates for 2015. Changes to your job, marital status or dependents, a new home, or a serious health issue - all of these life events can affect your tax situation. Adjustments now can put extra money in your pocket when you need it most.
* Go long. In addition to strategies that yield immediate benefits, think about your long-term finances. Take full advantage of your employer's retirement matching program. Consider contributing the maximum allowed by law, especially if you are nearing retirement age. In 2015, you can contribute up to $18,000 to your 401(k) plan, plus a $6,000 catch-up contribution if you're age 50 or over.
* Consider the myRA (my Retirement Account), a new retirement option for 2015. While these accounts are not designed to replace other retirement plans, the benefits may make opening a myRA a smart idea. For example, the account charges no fees, is guaranteed not to lose value, and can be established with as little as $25.
Are you ready to think really long term? Review your will and estate plan. Even though the current high-dollar exclusions may shield you from the estate tax, there are still good reasons for you to have a solid plan in place.
If looking back at 2014 leaves you thinking you should have managed things better, take steps now to get your tax and financial plan back on track.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad& Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted& Christensen, Janell Israel & Associates and NPC are separate and unrelated companies. NPC does not provide tax or legal advice.
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