As summer moves on, so does the continued need to manage your tax obligation. This month includes a review of the charitable donations from IRAs tax benefit recently made permanent. There are tips to improve your home’s cash flow and tips to help make school expenses a tax deductible event. A refresher on hotel safety tips to make your summer vacation a safe and memorable one is included for your reference.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
Charitable Donations from Your IRA
Can you take advantage?
One of the temporary tax provisions made permanent as part of the tax code in late 2015 is qualified charitable distributions from IRAs for those who have reached age 70½. Unfortunately in 2014 and 2015, the law was extended too late during the calendar year to reasonably use this tax law. In 2016 you have the ability to make a planned decision to use this tax benefit. Here is what you need to know.
The rule. For those age 70½ or older, you can have up to $100,000 of your IRA paid directly to qualified tax-exempt charities each year. These pre-tax funds are not subject to income tax by the federal government. This makes the contribution income tax free. No itemized deduction for your contributions is available on these direct transfers.
The benefits
Charitable Donations from Your IRA
Bullet Item Taxpayers do not have the contributions from their retirement accounts added to their Adjusted Gross Income. So as a planning tool, this donation strategy can keep Adjusted Gross Income low. This can help avoid things that come with higher income levels like different Medicare premiums.
Bullet Item The contribution counts towards a taxpayer’s annual Required Minimum Distribution. If a taxpayer does not need the income and does not want to be subject to required minimum distribution penalties, this can be a great alternative.
Bullet Item The contribution is a straight write off. Remember, these funds are sitting in your IRA in pre-tax status. When they are normally withdrawn, the funds are subject to income tax. This tax feature allows you the charitable deduction without the hassle of itemizing your deductions.
Some cautions
As with all tax laws, you must be aware of the rules. Foremost among them are;
Bullet Item The contribution must be made directly between your account and the charity.
Bullet Item This benefit is on the federal level. The tax treatment in your home state will vary.
Bullet Item Since the donation does not go through the taxpayer’s income, the donation is not subject to the percentage of income limits on charitable giving by type of organization.
Bullet Item Don’t wait. Since it usually takes time to initiate and complete this transfer, do not wait until the end of the year to make your direct contribution. The money must be at the charity prior to January 1st.
While this tax opportunity is not right for everyone, it is a new tool to use when creating your annual tax plan.
Hotel Safety Travel Tips
As summer vacations continue through the month, please take a moment to review Traveler Safety Tips provided for those who stay in hotels and public lodging. These tips are provided courtesy of the American Hotel and Lodging Association. Be safe out there!
Bullet Item 1 Don’t answer the door in a hotel or motel room without verifying who it is. If a person claims to be an employee, call the front desk and ask if someone from their staff is supposed to have access to your room and for what purpose.
Bullet Item 2 Keep your room key with you at all times and don’t needlessly display it in public. Should you misplace it, please notify the front desk immediately.
Bullet Item 3 Close the door securely whenever you are in your room and use all of the locking devices provided.
Bullet Item 4 Check to see that any sliding glass doors or windows and any connecting room doors are locked.
Luggage in a hotel room
Bullet Item 5 Don’t invite strangers to your room.
Bullet Item 6 Be aware of potential phone scams and prank calls to your guestroom. Hotel employees will never request credit card or personal information over the phone, nor will they advise a guest to damage hotel property.
Bullet Item 7 Place all valuables in the hotel or motel’s safe deposit box.
Bullet Item 8 When returning to your hotel or motel late in the evenings, be aware of your surroundings, stay in well-lighted areas, and use the main entrance.
Bullet Item 9 Take a few moments and locate the nearest exit that may be used in the event of an emergency.
Bullet Item 10 If you see any suspicious activity, notify the hotel operator or a staff member.
Source: American Hotel & Lodging Association
Ideas to Improve Your Cash Flow
One of the most common reasons businesses fail is due to lack of understanding of cash flow. The same can be said about your household’s personal financial statement. So what is this cash flow concept, how does it apply to you, and what are some ways to improve yours?
Cash flow defined
Cash flow equals cash coming in (wages, interest, social security benefits) and subtracting the bills you pay. Unfortunately, calculating cash flow is never that easy. Some bills are due weekly, others monthly. Some large bills come quarterly, or annually. Understanding this flow of cash is the first step in knowing how to improve yours.
Cash flow
Create your cash flow snapshot
Before improving your cash flow, you need to be able to see it. There are many online tools to create a map, but you can also take a snapshot of your cash flow using a monthly spreadsheet.
Bullet Item 1 Put each month across the top of the spreadsheet with an annual total.
Bullet Item 2 Note all your revenue and corresponding expense descriptions in the left-hand column.
Bullet Item 3 Enter your income and bills by month. Create a monthly subtotal of all your inflows. Do the same for your expenses or cash outflows. Then subtract the expenses from income. Positive numbers? You have positive cash flow. Negative numbers? You have negative cash flow.
Bullet Item 4 Create a cumulative total for the year to see which months will need additional funds and which months will have excess funds.
Ideas to improve your cash flow
Bullet Item Identify your challenges. See if you have months where more cash is going out than is coming into your bank account. This is often when large bills are due. Try to balance these known high-expense months out over the year if at all possible. Common causes are:
Check The holidays
Check Property tax payments
Check Car and homeowners insurance
Check Annual income tax payments
Check Vacations
Bullet Item Build a reserve. If you know there are challenging months, project how much additional cash you will need and begin to save for this reserve in positive cash months.
Bullet Item Cut back on annuities. See what monthly expense drivers are in your life. Can any of them be reduced? Can you live with fewer cell phone add-ons? How about cutting costs in your cable bill? Is it time for an insurance review?
Bullet Item Shop your current services. Some of your larger bills may create an opportunity for savings. This is especially true with homeowners and car insurance.
Bullet Item Don’t confuse savings with cash flow. Think of your savings as the accumulation of positive cash flows from prior months. A high savings balance can often mask a monthly cash flow problem where more is going out than is coming in over a period of time.
Bullet Item Create savings “expense” to add to cash flow. Consider adding a “bill to yourself” in your cash outflows. This money saved is a simple technique to create positive cash flow each month to build an emergency reserve.
Tips to Make School Expenses Deductible
It seems like summer has just begun and the Back-to-School advertising blitz has already started. Are there tax savings opportunities within this nightmare for our kids? Certainly, if you are tax smart about your spending. While the amounts may be small, they can add up in a hurry. Here are some ideas:
Check mark Purchasing the class supply list could have deductions in it. Often schools send a list of requested supplies for the school year. Some of the items on the list are clearly for personal use (such as an eraser or a ruler) while other items on the list are often for school use and classroom use (such as 24 pencils or paper towels). This classroom supply technique effectively transfers the school expenses to our children. Keep track of these non-cash classroom/school donations for possible non-cash charitable deductions.
Check mark Donate funds versus buying the supplies. Instead of buying the classroom supplies yourself, consider providing a check written to the school as a donation. This helps in two ways: First, it becomes a clear cash donation with a canceled check as a receipt. Second, if your school has a good supply agreement, the purchasing power of your donation will go further.
Apple and pencils
Check mark Whenever you donate, get a written confirmation from the school or your child’s teacher representing the school. Most teachers do not have the form, so bring one with you that the teacher can sign. You can get the directions on www.irs.gov or simply use a respected charitable group like Goodwill, or the Red Cross for a format to copy.
Check mark Leverage the school’s PTA. This non-profit parent group, if a qualified charitable organization, is a great resource to help your school AND help you get deductible donations for funds you would otherwise provide to your child’s school.
Check mark Use checks not cash. If you usually provide donations to the school in the form of cash (like providing additional money to help other kids go on field trips) make those donations in the form of a check. Cash donations without receipts are not deductible.
Check mark Donate funds versus taking the raffle ticket. Raffles, subscription drives, and silent auctions are fun ways schools raise funds. To maximize your ability to deduct your donations, forego the possible prize. Then the entire donation is clearly deductible.
Check mark Don’t forget your out-of-pocket expenses for your volunteer activities. Perhaps you donate your time at school functions, donate books to the school library, or help assist the teaching staff. Your out-of-pocket expenses and your mileage should be tracked for charitable deduction purposes.
Check mark Teachers, save your out-of-pocket expenses. The $250 deduction for qualified educators out-of-pocket classroom expenses is a popular tax provision in Congress that is now a permanent part of the tax code.
Finally, don’t forget to review state rules for educational expenses. There are often credits available for out-of-pocket school and other educational expenses.
As always, should you have any questions or concerns regarding your situation please feel free to call.
This newsletter is provided by
R.D.M. Tax Service & Notary Public
47865 Stillwater Drive
La Quinta, CA 92253-7119
Office: 415.285.5384
Office: 760.564.1408
Dave@RDMTaxService.com
www.RDMTaxService.com
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