Permanently extended tax breaks from Dec 2015

[audreyh1]

Last Dec I was having trouble figuring out whether the sales tax deduction would be available for 2015. I was trying to get all my schedule A deductions planned/reviewed before the end of 2015.

Turns out it and several other tax breaks were permanently added shortly after I researched it. How you'll benefit from the new tax breaks deal - Dec. 16, 2015

I don't think it was covered much in the news, so I missed it.

So just in case you missed it to.

 

[braumeister]

Not mentioned in that article, but another big provision made permanent was Qualified Charitable Distributions (QCDs).

If you're over 70 ½, you can make a direct transfer from your IRA to a qualified charity. The big break here is that it can count as your RMD for the year but you don't have to pay the tax on it like you would with a regular distribution.

Obviously, if you need the RMD to live on, this is a nonstarter, but for those who don't, it's a nice benefit.

 

[audreyh1]

Not mentioned in that article, but another big provision made permanent was Qualified Charitable Distributions (QCDs).

If you're over 70 ½, you can make a direct transfer from your IRA to a qualified charity. The big break here is that it can count as your RMD for the year but you don't have to pay the tax on it like you would with a regular distribution.

Obviously, if you need the RMD to live on, this is a nonstarter, but for those who don't, it's a nice benefit.

Yeah - why wasn't that mentioned? I read it in another article. [-]Was it a different bill? It may have been[/-].Same legislation.

I wish donor advised funds were qualified!

 

[harley]

Not mentioned in that article, but another big provision made permanent was Qualified Charitable Distributions (QCDs).

If you're over 70 ½, you can make a direct transfer from your IRA to a qualified charity. The big break here is that it can count as your RMD for the year but you don't have to pay the tax on it like you would with a regular distribution.

Obviously, if you need the RMD to live on, this is a nonstarter, but for those who don't, it's a nice benefit.

Excellent! I wasn't aware of that one. I like to do some charitable giving, and I'm always looking for ways to bypass taxes. It's sort of a hobby. I've been doing Roth conversions to decrease my future RMDs. Once I hit 70 I can do my charitable giving from the tIRA, and still not have to pay the taxes. It's a two-fer!


Edit: I just realized that doing this will (I assume) cost you the charitable giving deduction you would get for giving after tax money. I'll have to do some calculating and see which option will work best.

 

[gauss]

Edit: I just realized that doing this will (I assume) cost you the charitable giving deduction you would get for giving after tax money. I'll have to do some calculating and see which option will work best.

FWIW - One way effects AGI, the other does not.

 

[unclemick]

Not mentioned in that article, but another big provision made permanent was Qualified Charitable Distributions (QCDs).

If you're over 70 ½, you can make a direct transfer from your IRA to a qualified charity. The big break here is that it can count as your RMD for the year but you don't have to pay the tax on it like you would with a regular distribution.

Obviously, if you need the RMD to live on, this is a nonstarter, but for those who don't, it's a nice benefit.

Good O - I'm going to have to keep that one in mind.

heh heh heh - Thanks. Wonder how it's going to make my old buddies old pals at the IRS feel.

 

[kaneohe]

......................... Once I hit 70 I can do my charitable giving from the tIRA, and still not have to pay the taxes. It's a two-fer!


Edit: I just realized that doing this will (I assume) cost you the charitable giving deduction you would get for giving after tax money. I'll have to do some calculating and see which option will work best.

Basically, it's a wash w/ some second order effects. In one case you don't declare income and don't get a deduction. In the other you declare the income and then deduct it. However if the increased AGI causes you to lose credits or suffer increased costs like the Medicare IRMAA premiums for higher income folks or the NIIT tax for investment income, then the QCD helps by lowering AGI. If for some strange reason you need the increased AGI, then the QCD would hurt.

Some folks don't have enough to deduct so the QCD helps them.

 

[harley]

FWIW - One way effects AGI, the other does not.

I think they both do. If you donate after tax and do the deduction, it lowers your AGI. If you donate from the IRA, it decreases your RMD, which lowers your AGI. At least in my case, where the RMD will be more than I need. I'm just not sure at this point which would reduce your tax the most.

 

[kaneohe]

I think they both do. If you donate after tax and do the deduction, it lowers your AGI. If you donate from the IRA, it decreases your RMD, which lowers your AGI. At least in my case, where the RMD will be more than I need. I'm just not sure at this point which would reduce your tax the most.

https://www.irs.gov/pub/irs-pdf/f1040.pdf

Income less adjustments = AGI
AGI less deductions less exemptions= taxable income

Donate after tax..........does not affect AGI but could affect taxable income if you itemize
Donate from IRA (QCD)...........lowers income which lowers AGI

Taxable income could be the same for both cases but not AGI.

 

[audreyh1]

Edit: I just realized that doing this will (I assume) cost you the charitable giving deduction you would get for giving after tax money. I'll have to do some calculating and see which option will work best.

That's right, but having it not even show up in the AGI is more valuable than deducting it in Schedule A, especially for folks subject to limitations on their donations.

 

[audreyh1]

I think they both do. If you donate after tax and do the deduction, it lowers your AGI. If you donate from the IRA, it decreases your RMD, which lowers your AGI. At least in my case, where the RMD will be more than I need. I'm just not sure at this point which would reduce your tax the most.

No they don't! Schedule A does not lower your AGI. It lowers the taxable income and therefore your calculated tax rate. Big difference since many other things operate off of AGI such as - AMT, NIIT, taxing of SS, Medicare part B rates, etc.

 

[audreyh1]

Basically, it's a wash w/ some second order effects. In one case you don't declare income and don't get a deduction. In the other you declare the income and then deduct it. However if the increased AGI causes you to lose credits or suffer increased costs like the Medicare IRMAA premiums for higher income folks or the NIIT tax for investment income, then the QCD helps by lowering AGI. If for some strange reason you need the increased AGI, then the QCD would hurt.

Some folks don't have enough to deduct so the QCD helps them.

It's definitely NOT a wash! Can make a big difference - admittedly more for higher income folks subject to those extra taxes plus limitations on deductions.

That's why I work hard to donate appreciated securities rather than after tax cash.

 

[audreyh1]

Another list - it covers a couple items missing from the first article. 6 tax breaks Congress just passed - MarketWatch

 

[athena53]

It's definitely NOT a wash! Can make a big difference - admittedly more for higher income folks subject to those extra taxes plus limitations on deductions.



That's why I work hard to donate appreciated securities rather than after tax cash.

I agree. Last year we had DH's RMD sent straight to our church. It's under &1K (DH is a dear man but I didn't marry him for his money) but it reduces our Adjusted Gross, which is the basis for the % floors on Medical and Miscellaneous deductions. There are few legitimate ways to reduce AGI (contributions to an HSA if you're eligible is one), so we're happy to have this one.

 

[kaneohe]

It's definitely NOT a wash! Can make a big difference - admittedly more for higher income folks subject to those extra taxes plus limitations on deductions.

That's why I work hard to donate appreciated securities rather than after tax cash.

audrey........didn't realize you were such a speed reader! Otherwise I might have changed my first sentence (or emphasized BASICALLY). If you had processed the rest of the post, you would have seen important qualifying conditions, many of which you later repeated.

You and athena added other important qualifying conditions including AMT,
SS taxing (though I suspect w/ AMT you would be well past saturating the SS effect), deduction limitations, and floor calculations on medical/misc deductions.

Another interesting effect is if you have basis in TIRAs. When you take the QCD, all of that comes out of the untaxed (non-basis) part of the TIRA which preserves the basis so taxation of non-QCD withdrawals is lowered.

It certainly is a ymmv situation. Some who itemize deductions would find no difference in doing a QCD vs donating and deducting.That's why I chose to do the QCD before the QCD was reinstated. Others who are nearer to transition boundaries would find bigger differences so perhaps one might say:
QCD >= Donate & deduct
that is QCD is almost always better than or equal to Donate and deduct.
Perhaps the almost doesn't belong there (I can't think of a situation where QCD would be worse) .

 

[gerntz]

It's definitely NOT a wash! Can make a big difference - admittedly more for higher income folks subject to those extra taxes plus limitations on deductions.

That's why I work hard to donate appreciated securities rather than after tax cash.

There is no tax on appreciated securities - or anything else appreciated - if you hold them till death & have under $5M in total assets.

 

[harley]

Sorry, I was obviously conflating AGI with taxable income. In my case it's largely the same, since I don't have a large taxable income (no AMT or NIIT worries), and aren't old enough yet to have to worry about SS and Medicare. I'll try to be more precise in the future.

 

[audreyh1]

You and athena added other important qualifying conditions including AMT,
SS taxing (though I suspect w/ AMT you would be well past saturating the SS effect), deduction limitations, and floor calculations on medical/misc deductions.

Those are independent factors. Someone can easily have their RMDs push them across the threshold into having their SS taxed even though they aren't subject to AMT.

 

[audreyh1]

Sorry, I was obviously conflating AGI with taxable income. In my case it's largely the same, since I don't have a large taxable income (no AMT or NIIT worries), and aren't old enough yet to have to worry about SS and Medicare. I'll try to be more precise in the future.

If you are donating to charity, and thus using Scheduke A to itemize (including your state income taxes and property taxes as well as charitable donations), there will be a difference between taxable income and AGI. One difference that already exists is your exemption(s) and the standard deduction. If your income is not high, those are already significant.

When you make the charitable donations from your RMD instead, you don't even have to itemize to gain the tax benefit. A portion of your RMD is satisfied, yet the donation doesn't even show up as part of your income.

For many folks the RMDs after age 70 1/2 can suddenly make more of their SS taxable as well as make them subject to higher Medicare premiums.

All these factors impact people who are older than 70 1/2, so you have to look at how your taxes might change then.