Thank Goodness for Tax Strategy
The tax collector is coming! The calendar year is coming to an end and that is a deadline for most tax reduction/tax deferral strategies. In regard to taxes the usual attention getting date is April 15 which is the filing date. However, in order to impact the tax filing for 2022 that you will submit in 2023, the calendar year is more important. Although we are not tax preparers or tax experts, if you find that any of our recommendations making sense, make sure to consult your tax person. Consider these possibilities to impact tax liability:
- First, in order to maximize the few charitable deductions now available your deductions have to exceed the standard deduction for 2022 of the standard deduction is $25,900 for joint filers, $19,400 for heads of household, and $12,950 for single filers and those married filing separately. Combining charitable deductions, mortgage interest deductions, qualified health deductions (qualified health expenses exceeding 7.5% of your Adjusted Gross Income), the State and Local Tax deduction of $10,000 and charitable deductions up to 100% of AGI. That’s it right now as far as personal deductions. Your aggregated deductions have to exceed $25,900 in order to have a larger deduction than you would receive by using the standard deduction. The effective strategy is to time your deductions to exceed the standard deduction applicable to you. The deduction over which you have the most control is charitable deductions.
- The most effective vehicle that provides flexibility in the timing of charitable le deductions is the Donor Advised Fund. This account has a unique feature allowing you to take the charitable deduction in the year you make the contribution to the DAF with no need to give the funds away in that same year. You can spread out the distribution of the funds for as long as you like and even name a beneficiary to continue giving from the DAF as part of your legacy.
- Ideally, you would have charitable intent as part of your regular spending priorities, you have appreciated securities in your after tax/trust portfolio that would cause you to pay capital gains taxes. By donating these securities that have appreciated and were purchased at a cost basis you avoid paying those capital gains taxes, and you get a tax deduction for the full amount in the year they are donated.
- Timing your contribution to the donor advised fund is important. Simultaneously contributing to the donor advised fund the same year your income is higher-for instance vesting and sales of RSUs-or you have sold a home incurring a large capital gain.
- $300 in cash donation or $600 for a couple are eligible for a deduction with the receipt.
More tax strategy coming in each week's newsletter. But tax strategy isn’t nearly as exciting as the latest asset meltdown in a world where returns are too good to be true. FTX the crypto currency trading platform collapsed into bankruptcy this week causing a wakeup call about risky assets and trading strategies too good to be true. Bernie Madoff, Long Term Capital, Lehman Brothers, Tulips, Ivan Boesky, the list goes on, yet we can count on the next financial scandal about every 5 years. Is it because people do not learn? If it sounds too good to be true, it probably is. This is a lesson that goes against human nature that makes us vulnerable to unrealistic promises striving for the highest return possible. The rise of FTX, founded in 2019 and collapsing into bankruptcy followed a familiar script luring investors as some of the most sophisticated investors in the world. What else is new? Firms trying to ride the latest fade that leads them to oblivion.
Headlines declaring the 60/40 portfolio is dead is another example of the popular press and some talking heads of riding the latest fad. Couple of links discussing the state of the traditional stock bond mix portfolio
- Investing Success - Why there is still plenty life in 60/40 portfolio
- Stock Market performance retirement fund 60-40
The framework for reaching your financial goals is not the latest fad but it is your personal financial plan and ongoing planning to adjust to the inevitable vicissitudes of life that will require plan adjustments.
From The SAS team we hope you have a wonderful Gathering with people close to you, as we will be enjoying our time together with ours - No Newsletter next week. Many Thanks to you all!
Weekly Catch-Up - News Articles That Caught Our Eye
- Read in CNBC: Investors bought nearly $7 billion in Series I bonds in October. Here’s the best time to cash them in, experts say
- Read in CNBC: This is the math equation that 'makes you or breaks you' in a marriage, says love researchers John and Julie Gottman
- Read in CNBC: PSYCHOLOGY AND RELATIONSHIPS 2 ‘red flag phrases’ that mean your relationship is in ‘shaky territory,’ according to John and Julie Gottman
- Read in CNBC: Household debt soars at fastest pace in 15 years as credit card use surges, Fed report says (cnbc.com)
- Read in CNBC: Here's the No. 1 thing that makes relationships successful, say psychologists who studied 40,000 couples
- Read in Axios: https://www.axios.com/2022/11/18/bearish-bets-stock-market
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter. SAS Financial Advisors, LLC is not responsible for any third-party content referenced.