These benefits can create substantial wealth, particularly when a company performs well. However, they also introduce financial decisions that are often more complicated than they initially appear.

When should you exercise your stock options? Is it better to sell shares immediately or hold them for potentially favorable tax treatment? How much company stock is too much? And perhaps most importantly, how do these decisions fit into your broader financial plan?

Understanding the different forms of equity compensation—and the choices available to you—can help turn a valuable employment benefit into a more effective wealth-building strategy.

First, Understand What You Own

Although the terms are sometimes used interchangeably, stock options, restricted stock units, and employee stock purchase plans are not the same. Each has different rules governing when you receive shares, when taxes become due, and what decisions you can make.

Here is a high-level comparison of the most common arrangements:

The important distinction is that the value of your equity compensation and the amount you ultimately keep after taxes can be very different.

Incentive Stock Options: Potential Tax Benefits With Important Trade-Offs

Incentive Stock Options, or ISOs, are generally available only to employees and can offer favorable federal tax treatment when specific requirements are met.

Suppose you receive 1,000 options allowing you to purchase company stock at $50 per share. Several years later, the stock is trading at $150.

You can exercise your options by purchasing 1,000 shares for $50,000, even though those shares have a market value of $150,000. The difference—$100,000—is commonly called the bargain element.

Unlike nonqualified stock options, exercising ISOs generally does not trigger ordinary income tax under the regular federal income tax system.

To qualify for favorable long-term capital gains treatment, however, you generally must sell the shares more than two years after the grant date and more than one year after exercising the options.

The potential advantage is meaningful. Long-term capital gains rates are generally lower than the highest ordinary income tax rates.

But there is an important complication: the Alternative Minimum Tax (AMT).

The $100,000 bargain element in our example may be included in income for AMT purposes in the year of exercise, even though you haven't sold any shares or received cash proceeds.

This can create an uncomfortable situation: a significant tax liability without the cash necessary to pay it.

There is also investment risk. If the stock declines substantially after exercise, you could face a tax obligation based on a value that no longer exists.

The planning opportunity: Rather than exercising all ISOs at once, consider a multiyear exercise strategy. Exercising smaller amounts over several years may help manage AMT exposure, coordinate with other income, and reduce concentration risk. Any resulting AMT credit may provide future tax benefits, although recovery is subject to limitations.

Nonqualified Stock Options: Simpler Taxes, but Timing Still Matters

Nonqualified Stock Options, or NQSOs, are more common and generally have more straightforward tax treatment.

Using the same example, suppose you exercise 1,000 options at $50 when the stock trades at $150.

The $100,000 difference is generally treated as ordinary compensation income in the year of exercise, subject to applicable income and payroll taxes.

Your tax basis in the shares becomes $150,000—the $50,000 purchase cost plus the $100,000 already recognized as compensation.

If you immediately sell the shares for $150,000, there is generally little or no additional capital gain, before transaction costs.

If you retain the shares, subsequent appreciation or depreciation is treated as a capital gain or loss when the shares are eventually sold. Holding them for more than one year after exercise generally allows any additional appreciation to qualify for long-term capital gains treatment.

The critical point is that the initial $100,000 bargain element has already been taxed as compensation. Holding the shares longer does not convert that amount into capital gains.

For executives and managers, exercising NQSOs often involves balancing three considerations: the potential for future stock appreciation, the tax consequences of exercise, and the desire to diversify.

A cashless exercise, in which shares are immediately sold to cover the exercise price and associated taxes, can be an effective way to access compensation value without committing substantial personal funds.

Restricted Stock Units: Straightforward, but Easy to Mismanage

Restricted Stock Units, or RSUs, have become a popular form of equity compensation, particularly among established public companies.

Unlike stock options, RSUs generally do not require employees to purchase shares. Instead, the company promises to deliver shares after certain conditions are met, typically continued employment over a specified period.

For example, suppose your employer grants 500 RSUs that vest after three years. When the shares vest and are delivered, the stock is trading at $200.

You generally recognize $100,000 of ordinary compensation income, even if you decide to retain every share.

This creates an important distinction: the tax obligation generally arises when the shares are delivered, not when you sell them.

Employers commonly satisfy withholding obligations by retaining a portion of the shares or selling shares on the employee's behalf. However, withholding may be insufficient for highly compensated employees, potentially creating an unexpected tax bill.

Once the shares are delivered, their value generally establishes your tax basis. Future appreciation or depreciation becomes a capital gain or loss when sold.

One useful question to consider is this: If your employer paid you a $100,000 cash bonus today, would you use that money to purchase $100,000 of company stock?

If the answer is no, retaining all your vested RSUs may not be consistent with your investment objectives.

Employee Stock Purchase Plans: An Often-Overlooked Benefit

Employee Stock Purchase Plans, or ESPPs, allow employees to purchase company shares through payroll deductions, frequently at a discount of up to 15%.

Some plans include a particularly attractive feature called a lookback provision, allowing the purchase price to be based on the lower stock price at the beginning or end of an offering period.

For example, suppose your company's stock trades at $100 when the offering period begins and $120 when it ends.

With a 15% discount and lookback provision, you may purchase shares for $85 even though their current market value is $120.

That creates an immediate $35 per-share economic advantage before taxes.

Qualified ESPPs also offer special tax treatment when certain holding periods are satisfied. However, the benefit of holding shares for favorable taxation must be weighed against the possibility of a stock price decline.

For many employees, participating in an ESPP and selling shares relatively soon after purchase can be an attractive strategy. The objective is to capture the available discount while limiting exposure to individual-company risk.

The Bigger Issue: How Much Company Stock Should You Own?

While tax treatment receives considerable attention, investment concentration may be the more consequential financial issue.

Executives and senior managers often have substantial economic exposure to their employers through salary, annual bonuses, retirement benefits, unvested equity compensation, and accumulated company shares.

If the company experiences financial difficulties, several sources of financial security could deteriorate simultaneously.

Consider an executive with a $3 million investment portfolio, including $1.2 million of employer stock. A 40% decline in that stock would reduce the portfolio by $480,000, assuming other holdings remain unchanged.

That same downturn might also threaten future bonuses or employment.

Diversification does not eliminate investment risk, but it reduces dependence on the fortunes of a single company.

For this reason, equity compensation decisions should be evaluated alongside the rest of your portfolio, retirement objectives, liquidity needs, and personal tolerance for risk.

Five Planning Decisions Worth Getting Right

Understanding how your equity compensation works is only the beginning. The real value comes from making informed decisions about when to exercise, sell, and diversify.

1. Know your vesting schedule and expiration dates. Stock options have finite lives, and leaving an employer may substantially shorten the time available to exercise them.

2. Coordinate transactions with your broader tax situation. Exercising options during a year with unusually high compensation, bonuses, or capital gains may produce a different outcome than spreading transactions over multiple years.

3. Evaluate tax savings against market risk. Holding concentrated stock positions solely to obtain favorable capital gains treatment may expose you to losses exceeding the potential tax savings.

4. Review tax withholding and cost basis carefully. Brokerage statements do not always reflect compensation already included in taxable wages. Incorrect cost basis reporting can result in paying taxes twice on the same economic income.

5. Develop a disciplined diversification strategy. Establishing guidelines for selling vested shares or exercising options can help prevent emotional decisions based on short-term stock price movements.

Executives should also consider company trading windows, insider trading restrictions, and whether a properly structured Rule 10b5-1 trading plan might help facilitate systematic diversification.

Bringing It All Together

Equity compensation can be one of the most valuable components of an executive's financial package. But maximizing its value requires more than simply waiting for the company's stock price to rise.

The most effective approach considers taxes, investment risk, cash flow, employment circumstances, and long-term financial objectives together.

A strategy that produces the lowest immediate tax liability is not necessarily the strategy that creates the best long-term financial outcome.

Whether you hold ISOs, NQSOs, RSUs, or participate in an employee stock purchase plan, the goal should be to make deliberate decisions that convert compensation opportunities into lasting financial security.

Ultimately, the objective isn't simply to maximize the value of your company stock. It's to maximize the contribution that equity compensation makes to your overall financial well-being.

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Source: This article draws on concepts presented in Understanding the Tax Impact of Employee Stock Options, an educational presentation by the National Association of Tax Professionals (NATP), together with additional financial planning perspectives from Attune Financial Planning.

Disclosure: This article is provided for general educational and informational purposes and does not constitute individualized financial, investment, tax, or legal advice. Equity compensation rules vary by plan, individual circumstances, and jurisdiction. Consult your financial and tax professionals before implementing a strategy.

In September 2025, the IRS issued final guidance confirming the 2026 start date (following a two-year delay). For 2026, retirement plans can follow a reasonable and good-faith approach as they transition to the new rules, but most plans will still need to enforce the Roth-only catch-up requirement starting that year. Formal compliance with all technical regulations begins for plan years starting after December 31, 2026.

What is a Roth Plan?

Before we begin, let’s start by defining what a Roth Plan is.  A Roth plan is a type of retirement account, such as a Roth IRA or Roth 401(k), that allows you to contribute money you have already paid taxes on, and then enjoy tax-free growth and tax-free withdrawals in retirement. Unlike traditional retirement accounts, you do not get a tax deduction up front, but the trade-off is that all future qualified withdrawals—both contributions and investment earnings—can be taken out tax-free as long as you meet basic rules, such as being at least age 59½ and having the account open for at least five years. Roth plans are especially appealing to people who expect to be in a higher tax bracket later in life, since they allow you to lock in today’s tax rate and avoid taxes on your retirement income down the road.

How this new rule impact Employees vs. Self-Employed individuals

Regular employees (W-2)

If your prior-year W-2 Box 5 from your current employer exceeds $145,000 then your 401(k)/403(b) catch-up must be a Roth beginning in 2026. If your plan does not offer a Roth option, you cannot make catch-up contributions until the plan adds a Roth feature (plans may still allow catch-ups for those below the threshold).

If you are below the income threshold then you can keep making catch-ups pre-tax or Roth, based on your plan’s options. 

Self-employed individuals (solo 401(k), partners)

If you do not receive W-2 wages from the plan sponsor (e.g., a sole proprietor with only net earnings from self-employment), the Roth-only catch-up does not apply—you may still make pre-tax catch-ups (or Roth, if your plan allows).

If you operate as an S-corporation and pay yourself W-2 wages, the rule can apply if your Box 5 wages exceed $145,000—your catch-up must be a Roth in 2026.

The September IRS ruling—what exactly changed?

In September 2025, Treasury and the IRS published final regulations that:

• Confirmed the mandatory Roth-only treatment for high earners’ catch-ups begins in 2026.
•  Clarified how to measure wages (use W-2 Box 5 from the plan sponsor; allowed certain aggregation in limited circumstances), and added correction and de minimis relief (e.g., small pre-tax amounts that should have been Roth may not require correction).
• Explained that for 2026, plans may operate under a reasonable, good-faith interpretation of the statute/proposed rules; but full regulatory compliance generally applies for taxable years beginning after December 31, 2026.

“Super” catch-ups for ages 60–63

SECURE 2.0 also adds an enhanced catch-up for participants age 60–63 (150% of the standard age-50 catch-up for that year). That feature continues, but if you are over the wage threshold in the prior year, those enhanced catch-ups must also be Roth in 2026.

Planning Considerations for 2025 and 2026

For employees

• Track your 2025 W-2 Box 5. If you’ll be over the indexed threshold, set your 2026 catch-up to Roth (and confirm your plan offers Roth).
• Confirm payroll readiness. Some recordkeepers will auto-switch catch-ups to Roth for affected employees; others require an employee election.
• Be mindful of the tax trade-offs. Roth catch-ups mean tax now, tax-free later—which can be attractive if you expect higher future tax rates or desire more tax-diversified retirement income.

For self-employed individuals

• No W-2 wages?  The Roth-only mandate doesn’t apply—you can keep using pre-tax catch-ups (or Roth) in your solo 401(k).
• S-Corp owners: If your 2025 W-2 wages from your S-Corp will exceed the threshold, plan on Roth catch-ups in 2026.
• Cash-flow & estimated taxes. Roth catch-ups do not reduce current-year taxable wages—adjust Federal withholding and quarterly tax payment estimates accordingly.

In Summary

The Roth-only catch-up requirement is one of the most meaningful retirement plan changes to come out of SECURE 2.0, and it will affect many high-earning workers beginning in 2026. While the rule adds a layer of complexity—especially for employers and payroll systems—it also creates a tax advantaged opportunity. For many, shifting catch-up dollars to Roth can strengthen long-term tax diversification, reduce uncertainty around future tax brackets, and provide more flexibility in retirement income planning.

With hat said, the impact will differ depending on your situation. Employees who cross the wage threshold of $145,000 will want to prepare for higher current-year taxes, while self-employed individuals may experience little to no change.  Plan sponsors and recordkeepers also have work to do to ensure Roth features are available and properly administered before the deadline.

As 2026 approaches, the best course of action is to stay informed, review your withholding and savings strategy, and confirm that your retirement plan elections align with your goals.  If thoughtfully planned for, this change can be more than just a compliance hurdle—it can be a valuable tool for building tax-efficient income in retirement.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.  Please consult your financial, tax, and estate planning professional regarding your specific situation.

Short-Term Rentals vs. Long-Term Rentals

When most people think of renting, they picture tenants with a year-long lease. Short-term rentals (like Airbnb or VRBO) are very different. Guests may stay just a weekend, a week, or perhaps a month. Long-term rentals, on the other hand, last for months or years and usually involve unfurnished spaces, tenant protections, and stable income.

Because short-term rentals operate more like vacation stays, the rules for taxes, expenses, and even insurance can be quite different from traditional renting.

How Taxes Work

Tax rules for short-term rentals can be tricky, and many owners get them wrong. Whether your rental income is treated like normal rental income or like business income depends on three main things:

• Length of stay – If most guests stay a week or less, tax law may not treat it as a typical rental.
• Services you provide – If you offer extras such as daily cleaning, meals, or concierge-type help, the government may view your property as more of a hotel.
• Your involvement – If you personally handle bookings, guest messages, cleaning, and repairs, you’re considered much more active than someone who hires a manager to do it all.

In other words:  If you mainly provide the space plus basics like Wi-Fi and cleaning between guests, you’ll usually report the income like a rental property.  If you run it like a mini-hotel with daily services and staff, your income is treated as business income, which can mean extra taxes.

Active vs. Passive Income

Once the tax rules are sorted, the next question is whether your rental counts as “active” or “passive.”

• Passive: You aren’t very involved and let a property manager handle most tasks. Losses (spending more than you earn) may be harder to use to reduce your taxes.
• Active: You manage the property yourself—responding to guests, arranging cleanings, making repairs. In this case, losses are easier to use to offset other income.

Think of it this way:  the more hands-on you are, the more likely your rental is considered active.

Vacation Homes You Also Use

Things get more complicated if the property is a vacation home you also use. You’ll need to split expenses between personal use and rental use.

For example, if you use the home yourself for one month and rent it for three months, about 75% of your expenses may be deductible as rental costs.

There’s also a special rule: if you rent the property out for 14 days or fewer in a year, you don’t have to report the income at all.  But in that case, you also can’t deduct the expenses.

Keep Good Records

Whether you’re renting full-time or part-time, it pays to treat your property like a business. That means:

• Tracking how many days it’s rented vs. how many days you use it yourself.
•  Keeping receipts for all expenses—repairs, supplies, services.
• Logging the hours you spend managing the property.

Having solid records can protect you if the IRS ever asks questions.

Be Mindful of Local Rules

Your city or county may have its own requirements for short-term rentals. Some places require permits, special “hotel” or “occupancy” taxes, or limit how many nights you can rent out your property. It’s important to check these rules before you start—violations can result in fines or restrictions on your ability to host.

Insurance Considerations

Standard homeowner’s insurance often doesn’t cover short-term rentals. If you plan to host guests, talk to your insurance company or look into a special policy for vacation rentals. This ensures you’re protected if something goes wrong during a guest’s stay.

Final Thoughts

Renting out your home can be a smart way to earn extra income, but it’s not as simple as listing it online. How long guests stay, what services you provide, and how involved you are all affect how your rental is taxed and regulated.

• Before you jump in, ask yourself:
• Am I just offering a space, or will I provide hotel-like extras?
•  Will I manage the property myself or hire someone else?
•  Do I plan to use the property personally as well?
• What local rules or permits apply where I live?

Answering these questions—and talking to a tax or financial professional—can save you from costly surprises and help make your rental experience both smooth and profitable.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.  Please consult your financial, tax, and estate planning professional regarding your specific situation.

While Prop 19 was originally promoted as a way to help seniors and wildfire victims relocate without tax penalties, it also reduced the long-standing tax benefits for inherited properties. Over the past five years, the law has evolved further through inflation adjustments and other procedural updates. Below is a summary of what you need to know about Prop 19 today and how recent changes may affect your property and estate planning strategies.

The Background: Why Prop 19 Was Passed

Before 2021, California property taxes were largely governed by Proposition 13, which capped annual property tax increases at 2% until the property was sold or transferred. This system kept taxes predictable but also created wide differences in rates between neighbors, where longtime owners often paid far less than recent buyers.  There were two key issues that motivated Prop 19:

1.    Inheritance Loopholes:

Under previous rules, children could inherit their parents’ property—whether a home, rental, or vacation house—and keep the parents’ low property tax base, even if they never lived in the property. Many inherited homes became investment properties taxed far below market value, costing counties and schools millions in potential revenue.

2.    Barriers to Moving for Older Homeowners:

Seniors often felt “locked in” to their homes because moving meant losing their low property tax assessment. This discouraged downsizing or relocating closer to family.

Proposition 19 aimed to close these gaps by limiting inherited property tax benefits and granting tax portability to certain homeowners; with the added benefit of directing the increased revenue to wildfire response and local government services.

Core Provisions of Proposition 19

The law introduced two significant reforms:

1. Tax Portability for Seniors, Disabled, and Disaster Victims

• Homeowners age 55 or older, severely disabled, or affected by a natural disaster may transfer their existing property tax base to a new home anywhere in California.
• This benefit can be used up to three times instead of just once.
• If the new home is more expensive, only the price difference is reassessed.

This provision has encouraged moving for older homeowners and those rebuilding after disasters, making it easier to move without a sharp tax increase.

2. New Limits on Parent-to-Child (and Grandparent-to-Grandchild) Transfers

• Children now keep their parents’ low property tax assessment only if they make the inherited home their primary residence.
•  Even then, only up to a certain amount of the original assessed value is excluded from reassessment. Any excess is taxed at current market rates.
• Vacation homes, rental properties, and investment real estate no longer qualify for the full exclusion.

These inheritance limits dramatically reduced the number of properties passed down with minimal tax impact, increasing local tax revenues.

What’s Changed Since 2021?

Since its implementation, Prop 19 has undergone several important updates to refine how the law is applied.

1. Inflation Adjustments to the Transfer Exclusion Cap

One of the most notable changes is the periodic adjustment to the cap on the parent-child (and grandparent-grandchild) exclusion. Originally set at $1 million in 2021, this cap is now indexed for inflation:

• For transfers between Feb. 16, 2023 and Feb. 15, 2025, the cap was $1,022,600.
• For transfers between Feb. 16, 2025 and Feb. 15, 2027, the cap has been raised to $1,044,586.

This means heirs can exclude up to $1.044 million above the home’s taxable value from reassessment when they inherit and move into the property as their residence. Any value above this threshold is subject to current market reassessment.

2. Expanded Small Estate Rules

New legislation has expanded California’s small estate procedures for decedents who pass away on or after April 1, 2025. Estates valued at up to $750,000 (for primary residences) can now use simplified affidavits to avoid full probate.

While this change is separate from the core provisions of Prop 19, it complements estate planning strategies by making property transfers for smaller estates less burdensome.

3. Increased Usage by Older Homeowners

Data since 2021 shows a dramatic rise in the number of Californians age 55+ using the portability benefit. In the Bay Area, for example, annual requests to transfer property tax bases jumped from around 1,000 pre-Prop 19 to over 3,000 by 2023. This has allowed many retirees to move closer to family, downsize, or relocate to new areas without tax penalties.

4. Decline in Parent-Child Exclusions

On the other hand, the number of parent-child property transfers receiving favorable tax treatment has dropped sharply. In the same Bay Area counties, approvals fell from roughly 16,800 in 2020–21 to around 4,600 by 2023–24. This shift reflects the stricter requirements and reassessment rules under Prop 19.

Why These Changes Matter To You

The adjustments to Prop 19 underscore the importance of reviewing your property and estate plans regularly for the following reasons:

• Inheritance Planning Needs Reevaluation:  Families can no longer assume inherited properties will retain low taxes unless strict conditions are met. Without planning, heirs may face significant property tax hikes.
• Opportunities for Seniors:  If you are 55 or older and considering a move, Prop 19’s portability provisions may make relocation far more affordable.
• Tax Implications Continue to Evolve:  Inflation-indexed caps and procedural changes mean property transfers require careful timing and documentation to optimize tax outcomes.

To Summarize

California’s Proposition 19 fundamentally changed property tax rules, balancing homeowner mobility with increased revenue for public services. Since 2021, updates such as the inflation-adjusted transfer cap and expanded small estate rules have further refined its impact.  For homeowners and families, understanding these provisions is critical to avoiding surprises and maximizing opportunities. Whether you are planning to downsize, relocate, or transfer property to the next generation, now is the time to review your options.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.  Please consult your financial, tax, and estate planning professional regarding your specific situation.

Impact on Tax Rates and Standard Deductions

This new law makes the 2017 Tax Cuts and Jobs Act (TCJA) permanent. That means the lower tax rates and bigger standard deductions from that earlier law will not expire after 2025 like they were originally scheduled to.  If you have been enjoying lower tax rates over the past few years, that will continue.  For example, middle-income taxpayers who were in the 22% or 24% tax bracket will stay in those brackets rather than moving up to higher rates. The standard deduction — the flat amount you can subtract from your income before paying taxes — remains high as well.  For 2025, it is $15,750 for single filers and $31,500 for married couples filing jointly.  This helps most families who do not itemize deductions save money on taxes.

Increase in SALT Deductions

One of the most talked-about changes is the increase in the State and Local Tax (SALT) deduction cap.  Under the old law, you could only deduct up to $10,000 in state and local taxes from your federal tax return. This was a problem for people living in high-tax states like California, New York, and New Jersey.  The new law raises the SALT cap to $40,000 through 2029 for households making less than $500,000.  That is a big win for middle- and upper-middle-income homeowners in high-cost areas.  If you own a home and pay a lot in property or state income taxes, you might now be able to deduct much more of those costs on your federal return.  Just keep in mind this benefit phases out if you make over $500,000.

New Temporary Tax Deductions

The new law also introduces several targeted temporary tax deductions aimed at working Americans.  For example, if you earn tips, you can now deduct up to $25,000 in tip income from your taxable income — but only if your total income is under $150,000 (or $300,000 for married couples).  Similarly, if you earn overtime, you can deduct up to $12,500 of that extra pay under the same income rules.  These changes are designed to help service workers and hourly employees, but they are only available through 2028. Another notable deduction is for auto loan interest — if you buy a car that was assembled in the U.S., you can deduct up to $10,000 in loan interest, as long as your income is below $100,000 ($200,000 for couples).

Seniors also get a tax lift under the new law.  If you are over 65, you now qualify for an extra $6,000 deduction.  This is on top of the standard deduction and is meant to ease the tax burden for retirees.   Families with children will also benefit from a slightly larger Child Tax Credit — it goes up from $2,000 to $2,200 per child, and it is now adjusted for inflation, meaning it could rise slightly each year.

New "Trump Accounts"

Another new feature is the creation of what the law calls “Trump Accounts.”  These are special accounts created for children born between 2025 and 2028.  While the details are fuzzy,  the government plans to automatically deposit $1,000 at birth, and families can contribute up to $5,000 a year.  The money can be used later for things like education, job training, or buying a first home.  It is a new way to help young families save for their children’s future, though the program’s long-term benefits remains to be seen.

Small Business Tax Benefits

Small business owners also get a handful of benefits.  The law extends and expands Section 179 expensing, which allows businesses to write off large equipment or software purchases right away rather than over several years.  This encourages business investment and helps lower taxable income.  In addition, tax breaks for pass-through businesses (like LLCs and sole proprietorships) are preserved, which means many small business owners will continue to see lower tax bills.

Negative Impacts

However, not everyone will benefit from this Bill.  To finance the reduction in income tax revenue, the law includes major cuts to programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP), totaling over $1 trillion in reductions.  This could impact millions of low-income families who rely on these services for healthcare and groceries. In fact, analysts warn that for many of these families, any small tax savings could be outweighed by the loss of vital support.  So, while the law puts more money into some peoples pockets, it also takes money and services away from others.

The law also rolls back many clean energy tax credits that were included in the Inflation Reduction Act of 2022.  Subsidies for solar, wind, and electric vehicles have been scaled back, though some support for hydrogen energy remains.  This could make green energy projects more expensive and slow the pace of environmental progress, depending on how the private market reacts.

In terms of the overall economy, the law is expected to add between $3 trillion to $4 trillion to the federal deficit over the next 10 years.  While some economists believe the tax cuts could boost economic growth in the short term, others argue that adding so much to the already massive $36.2 trillion national debt could harm the economy in the long run; especially if the U.S. economy cannot grow at a rate sufficient to sustain this level of debt.  It is also important to note that this law, just like the TCJA in 2017 passed without a single vote from Democrats in Congress, making it one of the most partisan tax laws in modern history.  

What Does This All Mean for You?

If you are a high-income earner living in a high-tax state and itemize your deductions, you could benefit significantly from the higher SALT cap.  If you are a middle-income family earning tips, overtime, or raising children, you might see modest tax savings starting in 2025.  Seniors and small business owners also have opportunities to reduce their tax bills.  But if you are a low-income earner and depend on government aid for healthcare or food, you may incur increased financial hardships because of reduced benefits.

Because this Law will have an immediate impact on your 205 tax return, the best thing you can do now is start planning ahead.  Review your 2025 income, check if you qualify for any of the new deductions, and consider talking to a tax professional.  Some changes, like the Trump Accounts and overtime deductions are temporary, so you’ll want to act before they expire.  If you are concerned about losing benefits, start looking into your state-level programs now to see if they could potentially help make up for lost benefits.

In short, this law is a major tax overhaul that rewards some and penalizes others. While many Americans could see some financial benefit from a tax savings standpoint, the bigger story is how it reshapes social programs, energy policy, and the national debt for years to come — with significant economic consequences that may last long after the immediate personal tax benefit is felt.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

If you’ve ever wondered how to maximize the impact of your charitable donations while also enjoying the tax benefits of doing so, this blog post might be helpful to you.  In this article, I will break down seven effective charitable planning strategies in plain English, so you can feel more confident discussing this topic with your estate planning attorney.

1. Annual Giving:  The Classic Starting Point

Annual giving is as straightforward as it sounds: donating cash or assets to qualified charities each year. But here’s where the strategy kicks in.

• Cash donations are deductible up to 60% of your adjusted gross income (AGI).
• Donating appreciated assets (like stocks or real estate that have gone up in value) is deductible up to 30% of your AGI.
• If your donation exceeds those limits, you can carry forward the extra deductions for up to five years.

A Tip on Timing:

Since the standard deduction increased significantly under the 2017 tax law (and may decrease again in 2026), many people “bunch” charitable gifts—combining a few years' worth of giving into a single year—to itemize and get a bigger tax break.

2. Qualified Charitable Distributions (QCDs):  Tax-Savvy Giving from Your IRA

If you’re 70½ or older, QCDs are a powerful tool. You can transfer up to $108,000 (2025 limit, adjusted for inflation) directly from your IRA to a charity—and it counts toward your required minimum distribution (RMD) but doesn’t get taxed as income.

Here’s why that’s huge:

• You lower your taxable income.
• You still fulfill your RMD obligations.
• You support causes you care about.

Just remember: QCDs can't go to donor-advised funds or private foundations, and there’s no charitable deduction since the money isn’t counted as income in the first place.

Bonus: You can also make a one-time $54,000 QCD to certain gift annuities or charitable remainder trusts, but it must be done in one year, and only you and your spouse can receive income from it.

3. Charitable Gift Annuities:  Giving While Receiving Income

This is a win-win strategy if you're charitably inclined but still want steady income. Here's how it works:

• You donate cash, stock, or other assets to a charitable organization like a university for example.
• The charity gives you (and possibly your spouse) a fixed income for life.
• You get an immediate tax deduction and possibly reduce capital gains taxes if you donate appreciated assets.

Think of it like buying a lifetime pension from a charity—you give them a gift, and they thank you with a reliable paycheck for life.

4. Charitable Remainder Trusts (CRTs):  Income Now, Charity Later

A Charitable Remainder Trust lets you donate assets but keep an income stream for yourself (or others) during your lifetime or for a fixed amount of time, up to 20 years. After that, whatever remains in the trust goes to charity.

You’ll love CRTs if:

• You want to sell a highly appreciated asset (like a rental property or stock) without paying a huge capital gains tax all at once.
• You want to support a cause but also need income.
• You like the idea of a big tax deduction up front.

There are several types of CRTs, each with its own twist:

CRAT (Charitable Remainder Annuity Trust)

• Pays a fixed dollar amount annually.
• No extra contributions allowed after it starts.
• Great for predictability.

CRUT (Charitable Remainder Unitrust)

• Pays a fixed percentage of the trust’s value each year, recalculated annually.
• Payments go up or down based on investment performance.
• You can add more to the trust over time.

NICRUT & NIMCRUT

• NICRUT's adjust payments based on actual net income earned in the trust.
• NIMCRUT's let you "make up" missed income in future years.
• Often used when trusts hold hard-to-sell or non-income-producing assets.

Flip CRUT

•    Starts like a NICRUT, but “flips” to a standard CRUT when a triggering event occurs (like selling a property).

5. Charitable Lead Trusts (CLTs):  Charity First, Family Later

Where CRTs benefit you first and charity later, CLTs do the opposite.

With a CLT:

• The charity gets annual payments for a set number of years first.
• After that, whatever’s left in the trust goes to your family or other heirs.

Why is this strategy beneficial?

• You can pass more to your heirs while potentially reducing estate taxes.
• You still support your favorite causes.

CLTs can be structured in creative ways:

• CLAT (Charitable Lead Annuity Trust):  Pays a fixed annual amount to charity.
• CLUT (Charitable Lead Unitrust):  Pays a percentage of the trust’s assets each year.
• Zeroed-Out CLATs:  Designed to eliminate estate taxes entirely.
• Step or Shark-Fin CLATs:  Start with low payments to charity that increase over time, allowing assets to grow faster.

6. Donor-Advised Funds (DAFs): Flexible, Low-Maintenance Giving

A Donor-Advised Fund is like a charitable investment account.

• You donate cash or appreciated assets to the fund.
• You get a tax deduction in the year of the donation.
• The money grows tax-free and can be distributed to charities over time.

There’s no required annual payout, and you retain advisory privileges—meaning you recommend where and when the money goes. DAFs are perfect if you want to:

• Time your tax deduction but decide later which charities to support.
• Teach your children about philanthropy.
• Avoid the administrative hassle of running your own foundation.

7. Family Foundations:  A Legacy That Lives On

If your family is serious about philanthropy and wants control over how money is used for generations, a private foundation may be the answer.

• The foundation gets funded by your family’s assets.
• You (and your family) control the board, investment strategies, and who receives grants.
• Can operate programs, fund public charities, or provide direct aid.

There are two types:

• Operating foundations run their own programs.
•  Non-operating foundations give grants to others.

Private foundations must distribute at least 5% of their assets each year and follow strict IRS rules—but they’re powerful tools for families committed to long-term giving.

To Summarize

There is a common misconception that Charitable planning is just for the ultra-wealthy.  Fortunately, that is not true.  Anyone who wants to give with intention, make a difference, and get the most out of the tax system legally and ethically can formulate a charitable giving strategy.

Whether you’re donating $5,000 or $5 million, the right strategy can help you support your favorite causes, reduce your tax burden, and even leave more for your loved ones.

Working with a financial planner, a tax professional, and an estate planning attorney can help you choose the best path for your goals, your assets, and your timeline.  Hopefully now, you have a clear, plain-English roadmap to start asking the right questions and make smart, impactful charitable giving choices.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Let’s look at the TCJA, how it impacts individuals and businesses, and what to expect if some provisions expire.

What was the Tax Cuts and Jobs Act?

The Tax Cuts and Jobs Act was designed to overhaul the U.S. tax code with the goals of providing tax relief for individuals and businesses, stimulating economic growth, simplifying the tax system, and enhancing the competitiveness of American businesses in the global market. 

How the TCJA Impacted Filers

The TCJA impacted both individual and business tax payers. Let’s look at a few of the most notable changes.  Because this was such a substantial change, we haven’t listed all of the updates here, but they can be found on the IRS website.

Individuals

• Lower Tax Rates–The TCJA reduced tax rates for most individuals and families.  It maintained seven tax brackets but generally lowered the rates within those brackets.
• Increased Standard Deduction—The standard deduction was nearly doubled for all filing statuses. This change meant fewer taxpayers needed to itemize deductions, simplifying the tax filing process for many.
• Changes to Itemized Deductions—While the standard deduction increased, several itemized deductions were either reduced or eliminated. This includes a cap on the state and local tax (SALT) deduction and limitations on the mortgage interest deduction.
• Child Tax Credit—The TCJA increased the Child Tax Credit from $1,000 to $2,000 per qualifying child.
• Alternative Minimum Tax: The TCJA retained the individual alternative minimum tax (AMT) but increased the exemption amounts and phase-out thresholds, resulting in fewer taxpayers being subject to the AMT.
• Healthcare Individual Mandate: The TCJA effectively repealed the penalty for not having health insurance under the Affordable Care Act (Obamacare). Starting in 2019, individuals were no longer required to pay a penalty for lacking health insurance coverage.

Businesses

• Corporate Tax Rate Reduction—One of the most notable changes was a reduction in the corporate tax rate from a maximum of 35% to a flat rate of 21%.
• Pass-Through Business Deduction—The TCJA introduced a new deduction for certain pass-through businesses, such as partnerships, S corporations, and sole proprietorships. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income, subject to certain limitations and thresholds.

What to Expect if the TCJA Expires in 2025

Now that we understand some of the changes the TCJA included let’s look at what may change if the bill expires at the end of 2025.

Individuals

• The individual income tax rates would revert to their pre-TCJA levels which had seven tax brackets ranging from 10% to 39.6%.   Taxpayers would see higher tax rates applied to their income.
• The standard deduction, which was nearly doubled under the TCJA, would decrease. Taxpayers who benefited from the higher standard deduction would see a reduction in the amount they can deduct from their taxable income.
• The Child Tax Credit, which was increased to $2,000 per qualifying child under the TCJA, would potentially revert to its pre-TCJA amount of $1,000 per child. This change would result in less tax relief for families with children.
• The $10,000 cap on the deduction for state and local taxes (SALT) would no longer apply. Taxpayers would once again be able to deduct their full state and local tax payments, providing more tax benefits, particularly for those in high-tax states.
• The deduction allowed for mortgage interest would increase from $750k of debt to $1M plus $100k in home equity debt.
• Miscellaneous deductions could return.
• The AMT would apply again to many more taxpayers.
• The unified lifetime exclusion for estates and gifts would be reduced from $13,610,000 today to roughly half that amount.

Businesses

• The TCJA permanently changed the corporate tax rate structure, which previously had a top rate of 35%, to a flat 21% tax rate regardless of the amount of corporate taxable income. This provision is one of the few that will not expire at the end of 2025.
• The Qualified Business Income Deduction of 20% would go away which will result in pass-through business income being taxed according to ordinary individual income tax rates without a deduction for qualified business income.

The potential expiration of the TCJA will impact many taxpayers; some more significantly than others.  Therefore it is advisable that you consult with your tax professional to determine how these potential changes will impact your individual or business tax situation.

Here, we explain everything you need to know about Social Security benefit taxation.

How are Social Security Benefits Taxed?

While Social Security benefits are a vital source of income for many retirees, a portion of these benefits may be subjected to federal income taxes. The Internal Revenue Service (IRS) uses a formula—known as the provisional income formula—to determine the taxable amount.¹

Provisional Income Formula

An individual’s provisional income is calculated by adding together their adjusted gross income (AGI), their nontaxable interest income, and one-half of their Social Security benefits. The resulting amount is compared to specific thresholds to determine the portion of the benefits that will be subject to taxation.

Taxation Thresholds

The thresholds that determine whether Social Security benefits are taxable are as follows:¹

• Single filers with a provisional income between $25,000 and $34,000 may have up to 50% of their benefits subject to taxation.
• Single filers with a provisional income exceeding $34,000 may have up to 85% of their benefits subject to taxation.
• Married couples filing jointly with a provisional income between $32,000 and $44,000 may have up to 50% of their benefits subject to taxation.
• Married couples filing jointly with a provisional income exceeding $44,000 may have up to 85% of their benefits subject to taxation.

It’s important to note that these thresholds are not adjusted for inflation, which means that the benefits of more retirees may become subject to taxation over time.

State Taxes on Social Security Benefits

In addition to federal taxes, some states also impose taxes on Social Security benefits. However, the rules and exemptions vary from state to state. Currently, twelve states tax Social Security benefits to some extent, while the remaining states do not impose state taxes on these benefits.²

Strategies to Minimize Social Security Taxes

There are several strategies that you can implement to potentially reduce the taxes on your Social Security benefits. Here are a few:

Diversify Your Retirement Income

Diversify your sources of income during retirement. By relying on a combination of Social Security benefits, retirement savings, and other investments, you may be able to reduce your provisional income and lower your tax liability.

Consider Delaying Benefits

Delaying your Social Security benefits can increase the amount of your monthly payment. This strategy can also help you push back the taxation of your Social Security benefits if you anticipate being in a higher tax bracket in the future.

Create a Withdrawal Strategy

Strategically managing withdrawals from your retirement accounts can help optimize your tax situation. By taking distributions from taxable accounts instead of tax-deferred accounts, you can potentially minimize your provisional income and reduce the taxation of your Social Security benefits.

Understand State Tax Laws

If you live in a state that taxes Social Security benefits, familiarize yourself with the rules and exemptions that are specific to your state. Consulting with a tax professional can provide valuable insights into how to minimize your state tax obligations. You may also want to take the different state tax laws into account when you are deciding where you will live when you retire.

As the famous saying goes, there are only two guarantees in life: death and taxes. Social Security benefits aren’t exempt from taxes, and understanding how your benefits will be taxed will help you form an accurate retirement income planning strategy.

New Distribution Rules

The Required Minimum Distribution (RMD) age will rise to 73 in 2023.  Then, ten years from now, those turning 73 in 2033 will have their RMD age increased again to age 75.  By far, one of the most critical changes of this new law was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs).   If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year, you can wait to take distributions until you turn 73 in 2024.  Keep in mind that the age in which you can begin taking distributions from your retirement accounts have not changed which is 59½ years old.

Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees.  For example, starting in 2024, an employee can get up to $1,000 from a retirement account for personal or family emergencies without having to incur a 10% early withdrawal penalty. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.

Reduced penalty.  Starting in 2023, if you miss an RMD for some reason, the penalty tax drops down from 50% to 25%.   In addition, if you fix the mistake promptly and make your RMD, the penalty may drop to 10%.

New Accumulation Rules

Catch-Up Contributions. Starting January 1, 2025, people aged 60 through 63 can make catch-up contributions of up to $10,000 annually to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain restrictions to individuals earning more than $145,000 annually.

Automatic Enrollment. Beginning in 2025, the Secure Act requires employers to enroll employees into workplace plans automatically. However, employees can choose to opt-out of their company sponsored retirement plan.

Student Loan Matching. In 2024, companies can match employee student loan payments with retirement contributions.   Historically, high student loan debt has made it difficult to save for retirement.  The rule change offers workers an extra incentive to save for retirement while paying off student loans.

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, people can roll a 529 education savings plan into a Roth IRA.  This change will be beneficial to parents whose child gets a scholarship, goes to a less expensive school, or doesn't go to college.  Prior to the new law, parents who wanted to utilize the unused 529 plan money for retirement would incur a 10% penalty fee.  With the change in the law, this money can now be repurposed for retirement without penalty. However, the Act limits 529 to Roth rollovers to a maximum of $35,000 per beneficiary over their lifetime and rollovers are subject to the annual Roth IRA contribution limit.  In order to qualify for this tax and penalty free rollover, the 529 plan must have been open for 15 years.  In addition, contributions or earnings made in the 529 plan for the previous five years are not eligible for the rollover.

SIMPLE and SEP. From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees or Simplified Employee Pensions.

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth Individual Retirement Account (IRA) rules. From 2024, the legislation no longer requires minimum distributions from Roth Accounts in employer retirement plans.

More Highlights

Support for Small Businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.

Qualified Charitable Distributions (QCD).  Prior to the new law, individuals 70½ or older were limited to a maximum annual QCD donation of $100,000 from their IRA to a qualified charitable organization.  From 2024 onward, the maximum donation amount will be adjusted for inflation. The limit applies on an individual basis, so for a married couple, each person age 70½ and older can make a QCD as long as it remains under the limit.  Also, starting in 2023, individuals have a one-time opportunity to direct up to $50,000 of their QCD into a Charitable Remainder Trust (CRUT), a Charitable Remainder Annuity Trust (CRAT), or Charitable Gift Annuity.

Consider your Own Retirement Plan

As a result of this new law, the rules around retirement savings and distributions will evolve of the next few years. The provisions are complex so be sure to connect with a financial professional to understand how Secure Act 2.0 will impact your individual situation.

Keep in mind that retirement rules can change without notice and there is no guarantee that the treatment of specific rules will remain the same. This article is intended to give you a broad overview of SECURE 2.0 and is not a substitute for individual professional financial and tax advice.

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This content is developed from sources believed to be providing accurate information and provided by Attune Financial Planning.  It may not be used for the purpose of avoiding any federal tax penalties.  Please consult legal or tax professionals for specific information regarding your individual situation.  The opinions expressed and material provided are for general information only.

Individual Retirement Accounts (IRAs)

IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.

Roth IRAs

The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.

Workplace Retirement Accounts

Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.

SIMPLE Accounts

A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.

Other Changes

In addition to changes in contributions limits, the IRS also announced several other changes for 2023, including an increase to the annual exclusion for gifts to $17,000 per person and an increase to the estate tax exclusion threshold.

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This content is developed from sources believed to be providing accurate information and provided by Twenty Over Ten and Attune Financial Planning.  It may not be used for the purpose of avoiding any federal tax penalties.  Please consult legal or tax professionals for specific information regarding your individual situation.  The opinions expressed and material provided are for general information only.

Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.¹

For workplace retirement accounts such as a 401(k) or 403(b) the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500.¹

Eligibility for Roth IRA contributions has increased, as well. These have bumped up to between $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples.¹

Another increase was for Savings Incentive Match Plans for Employees (SIMPLE IRAs), which increases from $13,500 to $14,000.¹

If these increases apply to your retirement strategy, you may want to make some adjustments to your contributions. Where I can be of any help, I welcome the opportunity.

To-Do #1: Gather All of Your Forms

Beginning in January, you likely started to receive the forms you need to properly complete your tax return. If you are expecting a large refund, you will want to make a list so you don't forget anything that could affect it. Once you have received your documents, first give them a scan to make sure they are correct and contact the sender if there are any discrepancies. Remember, even a simple misspelling can cause a flag with your tax return. Inspect all of your documents carefully.

Some of the forms you will need to look out for include:

• W-2s from your job
• SSA-1099 for Social Security benefits
• 1099s for additional income, interest, gains and losses
• 1095-A for government marketplace health coverage
• 1098s for reporting interest and tuition payments
• W-2Gs for any gambling winnings
• Schedule K-1s for company ownership

To-Do #2: Round Up Your Receipts

If you have your own business or plan on itemizing your deductions, you will need to record expenses so that you can take advantage of any available write-offs. Gather all the receipts for business expenses, medical expenses and other expenses that can be listed on your Schedule A or Schedule C. Receipts can be physical receipts or bank and credit card statements that show payments for these items. Once gathered, organize them by type, so they are easy to find when you begin filing. 

To-Do #3: Acquire Records of All Charitable Contributions

Throughout the year, you may have made donations to a tax-exempt organization. These donations can provide you with a charitable contribution write off. Traditionally, this could only be done if you choose to itemize your deduction. However, because of the CARES Act, filers who choose a standard deduction may be able eligible to write-off up to $300 in charitable contributions.¹ 

Other donation types will still require an itemized deduction and documentation. Most organizations, from churches to fundraisers, can provide a record of your tax-deductible contributions.

To-Do #4: Create a List of All Personal Information

While you likely know your Social Security number by heart, you will want to jot down the Social Security numbers of any dependents you wish to claim. This way it is easy to access and you can be sure it’s accurate. Also, make a list of addresses for any properties you own as well as the dates on which they were bought or sold.

To-Do #5: Get a Copy of Last Year’s Tax Return

If you are using the same preparer as the previous year, they should have a copy of your tax return. If not, find your old copy and have it ready with your other tax items. Being able to reference your previous return can help you see what you filed last year, so you don't overlook something this year. 

To-Do #6: Determine How You Will Spend Your Refund 

If you expect to get a refund this year, you might want to take some time to consider what you plan to do with your return once you receive it. You have the option to apply your payment towards your tax bill next year if you believe you will owe. This can be a good idea for those who pay estimated taxes throughout the year as it can often put a chunk towards your first installment.

Alternatively, you can choose to send the money directly to a checking or savings account, or contribute it to an IRA, health savings account or education account. If you plan to split the funds between accounts, you will need to complete a Form 8888.

Don't let tax preparation leave you feeling overwhelmed. Enjoy less stress and a smoother process by preparing everything you need for filing this tax season.

The seven 2022 tax rates themselves didn't change (they are the same as those in effect for the 2021 tax year); however, the tax bracket ranges were modified based on inflation. Because of this, it's possible you could be in a different tax bracket for 2022 than the last time you reported your taxes, even if your income has not changed.¹

Reminder: Tax Brackets Are Marginal

The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are a single filer who made $40,125 in 2022, your first $10,275 will be taxed at 10 percent. The next portion of your income will be taxed at an increased rate; from $10,276 to $41,775, your tax rate will be 12 percent. 

As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income. 

Why Would My Tax Bracket Be Different? 

The IRS regularly adjusts tax brackets to take inflation into consideration. This is because, with inflation, people will face higher prices, meaning the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket, or credits and deductions are reduced. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.¹

2022 Tax Brackets 

Without further ado, here are the 2022 tax brackets according to your filing status and income from the IRS.¹

10% Tax Rate

• Single Individuals: from $0 to $10,275
• Married Individuals Filing Jointly: from $0 to $20,550
• Heads of Households: from $0 to $14,650
• Married Individuals Filing Separately: from $0 to $10,275

12% Tax Rate

• Single Individuals: from $10,276 to $41,775
• Married Individuals Filing Jointly: from $20,551 to $83,550    
• Heads of Households: from $14,651 to $55,900
• Married Individuals Filing Separately: from $10,276 to $41,775

22% Tax Rate

• Single Individuals: from $41,776 to $89,075
• Married Individuals Filing Jointly: from $83,551 to $178,150       
• Heads of Households: from $55,901 to $89,050
• Married Individuals Filing Separately: from $41,776 to $89,075

24% Tax Rate

• Single Individuals: from $89,076 to $170,050        
• Married Individuals Filing Jointly: from $178,151 to $340,100
• Heads of Households: from $89,051 to $170,050
• Married Individuals Filing Separately: from $89,076 to $170,050

32% Tax Rate

• Single Individuals: from $170,051 to $215,950    
• Married Individuals Filing Jointly: from $340,101 to $431,900        
• Heads of Households: from $170,051 to $215,950
• Married Individuals Filing Separately: from $170,051 to $215,950

35% Tax Rate

• Single Individuals: $215,951 to $539,900
• Married Individuals Filing Jointly: from $431,901 to $647,850
• Heads of Households: from $215,951 to $539,900
• Married Individuals Filing Separately: from $215,951 to $323,925

37% Tax Rate

• Single Individuals: over $539,901    
• Married Individuals Filing Jointly: over $647,851   
• Heads of Households: over $539,901
• Married Individuals Filing Separately: over $323,926

In addition to the tax inflation adjustments, the IRS also altered standard deductions. While the above rates and brackets are at the federal level, different states might have varying brackets and rates.

This past week, the House Ways and Means Committee released legislative text that offers tax revenue increases of up to $2.9 trillion to offset the expenses in the budget. The next step will be for congress to debate and negotiate the provisions in the bill.  In order to move the bill forward through the House of Representatives and the Senate, the Democrats in Congress will need to remain united as Republicans are not expected to support any part of the proposed tax bill.

While it is certainly possible that the specifics will change if the final bill passes, here are the major tax revenue proposals which will impact wealthy individuals and corporations the most:

Raising the top individual tax rate from 37% to 39.6%

One of the centerpieces of the bill is a return of the top ordinary income tax bracket to 39.6%. This had been the top rate from 2013 through 2017, but was reduced to 37% beginning in 2018 with the enactment of the Tax Cuts and Jobs Act (of 2017). If enacted, the current bill would ‘permanently’ reinstall 39.6% as the top ordinary income tax rate, beginning in 2022.  In the chart below you can see that this increase will primarily impact singles and those who are Married Filing Jointly with incomes greater than $400,000 and $450,000 respectively.  However, people below this income will not see any changes to their tax rates.

Increasing top capital gains rate from 20% to 25%

Paired with the new top ordinary income tax rate is a new top long-term capital gains rate of 25%. Unlike the proposed change to ordinary income tax rates, which would not be effective until 2022, the proposed changes to the top long-term capital gains rate would go into effect immediately, impacting long-term capital gains incurred on or after September 14, 2021.  Single and married filing jointly taxpayers with adjusted gross income greater than $400,000 and $450,000 respectively, will see their top long-term capital gains tax rate increase from 20% to 25%.  

Imposing a 3% surtax on individuals’ income above $5 million

Section 138206 of the proposal would create a new 3% surtax on ultra-high-income taxpayers. The additional 3% rate would apply to single and married filing jointly taxpayers whose adjusted gross income to the extent it exceeds $5 million.

Limiting the ability for wealthy individuals to use retirement accounts to reduce their taxes

There are also some changes to the retirement tax code for wealthy investors. The first prohibits individuals earning more than $400,000 a year with individual retirement accounts (IRAs) and 401(k)-style retirement accounts whose balances exceed $10 million from contributing more money to these funds. Those investors would also have a new required minimum distribution each year.

Second, the bill prohibits those earning more than $400,000 a year from converting individual retirement accounts (IRAs) and 401(k)-type plans into Roth IRA accounts, and eliminates the “mega-backdoor Roth” strategy completely. These strategies are often used by wealthy investors to pay less taxes on investments.

Increasing the Corporate Tax Rate

The flat corporate tax of 21% will be replaced with:

• First $400,000 in income taxed at 18%
• Next $5 million in income taxed at 21%
• Remaining income taxed at 26.5%

Reduction In The Unified Credit Amount For Estate And Gift Taxes

With the passing of the Tax Cuts and Jobs Act, roughly four years ago, the unified estate and gift tax exemption was doubled from (an inflation-adjusted) $5 million to $10 million, beginning in 2018.  Although that change was scheduled to sunset automatically at the end of 2025, the proposed bill accelerates that timeframe, reducing the exemption amount back to (an inflation-adjusted) $5 million for 2022 and future years (expected to be about $6 million in 2022 after inflation adjustments).

What’s Not Included? Repeal of State and Local Tax (SALT) deduction

Since the Tax Cut and Jobs Act, those who itemize deductions can no longer write off more than $10,000 for property and state income taxes on their federal return.  While the Ways and Means Committee didn’t address SALT in its package of tax proposals, a repeal of the SALT deduction limitation is not out of the question and could make it in the final version of the final tax bill.

If Democrats are able to remain unified, there is a good chance that we will see significant changes in the tax code fairly soon.  These changes will impact tax payers whose income is greater than $400,000 the most.  If you are a high-income earner, accelerating income into 2021, deferring tax deductions into 2022, pursuing Roth conversions, and gifting assets might be potential tax planning strategies worth considering.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

If you’re a parent or guardian, you could be eligible to receive a one-time enhanced tax credit for your child. Here’s what families need to know.

Changes to the Child Tax Credit

Families will see a one-time increase in the tax credits for the 2021 tax year. For this year only, eligible families may receive up to $3,600 for children five and under and up to $3,000 for children ages six to 17.   The child tax credit includes the original base credit amount of $2,000 per eligible child plus the enhanced benefit increase of $1,000  to $1,600 increase per child.

Advanced Payments for 2021 Child Tax Credit

The IRS is required to send out payments to qualifying families in advance. These payments will be half of the amount families are eligible to receive, and they are expected to be sent to families in six installments between July and December 2021. Much like the stimulus checks, families can expect to see these payments appear via direct deposit into their accounts or in the form of a check received through the mail.   Families who do not wish to receive the monthly installments can opt out by going to the IRS website

The IRS will determine eligibility based on your 2020 tax return, or your 2019 tax return if no 2020 return is on file. If your circumstances have changed and you either become eligible or ineligible for the credit, the IRS will be developing a portal that will allow you to update your information. This will be important for families who may have lost income or had a baby in 2021.

Eligibility Requirements

The American Rescue Plan has changed several eligibility requirements for families, opening up the child tax credit to more parents who may previously not have qualified. 

For this year only, parents with children aged 17 will be eligible for the child tax credit.  Previously, children over the age of 16 did not qualify.

Additionally, the $2,500 earnings floor has been temporarily lifted, and the credit has become fully refundable. This means that families who report less than $2,500 in adjusted gross income may still qualify for the tax credit and could be refunded up to the full amount.

Other eligibility requirements are still in place. Just as in previous years, children must:

• Be claimed on your tax return
• Be related to you
• Live with you for at least six months during the year
• Have a Social Security number
• Be a citizen or U.S. resident alien

To be eligible to receive monthly advanced monthly child tax credit payments, tax payers must have filed a 2019 or 2020 tax return and claimed the child tax credit on their return or provided their information to the IRS using the non-filer IRS tool.

Reduced Amounts for High-Income Families

For 2021, not all families will be eligible to receive this additional $1,000 or $1,600 in enhanced child tax credits.  Single filers with an AGI of $75,000 or joint filers with an AGI of $150,000 will start to see a reduction in enhanced benefits.

It’s important to note that these reductions only refer to the additional amount, not the base $2,000 credit. The enhanced credit will be reduced by $50 for every $1,000 over the AGI threshold based on filing status.

For the base $2,000 credit, the same phase-out system applies as it did for 2020. Single filers with an AGI above $200,000 and joint filers with an AGI above $400,000 will see a reduction in child tax credits - $50 for every $1,000 over the AGI threshold.

These changes to the child tax credit are temporary, but they can offer eligible families some important financial relief.

To calculate how much your child credit amount is go to:  https://www.kiplinger.com/taxes/602334/2021-child-tax-credit-calculator

#1  What are the two Types of IRAs you can contribute to?

Traditional IRA

 Contributions might be tax deductible and your investment returns are not taxed until you withdraw the money in retirement.  Withdrawals are taxed as ordinary income.

Roth IRA 

Contributions are not tax deductible as they are made “after-tax”.  Your investment returns grow tax free.  Withdrawals are made tax-free.

#2  What are the requirements to contribute to an IRA?

 For both a traditional and Roth IRA you must have earned income in order to contribute into an IRA.  Earned income includes wages from salary, commissions, bonuses, tips, and self-employment income.

For a Roth IRA, the amount of your contribution is phased out when your adjusted gross income is between $124,000 and $139,000 if you are single or $196,000 and $206,000 if you are married.

If you are married and your spouse did not have any earned income in 2020, they can make a "spousal" IRA contribution in their own IRA as long as you, the working spouse, meet the income requirements.

#3  How much can you contribute into an IRA?

You can contribute up to the lessor of your earned income or $6,000 in 2020.  This amount can be spread out between a Roth and a traditional IRA but your total contributions in your IRAs cannot exceed the lessor of your earned income or maximum limit of $6,000.

If you are 50 years or older, you are able to make an additional “catch-up” contribution of $1,000.

#4    When is your traditional IRA contribution tax deductible?

If you (and your spouse if you are married) are not covered by an employer sponsored retirement plan (e.g. 401K, 403b Plan), your IRA contribution is fully tax deductible.

If you are married and you are not covered by an employer sponsored retirement plan but your spouse is, then your tax deduction decreases when your adjusted gross income is between $196,000 and $206,000.

If you are single and you are covered by an employer sponsored retirement plan then your tax deduction decreases when your adjusted gross income is between $65,000 to 75,000. 

If you are married and both of you are covered by an employer sponsored retirement plan then your tax deduction decreases when your adjusted gross income is between $104,000 and $124,000 if you are married.

#5  When is the deadline to make an IRA contribution?

You have until the Federal tax filing deadline to make a contribution for the current tax year.  This year, the tax filing deadline is May 17th.  This means you have until this date to make a contribution for the 2020 tax year.

#6   Which IRA is better for you?

If your goal is to reduce your taxes today and you qualify to make a tax deductible contribution into a traditional IRA, then a traditional IRA might be a better choice for you.

If your goal is to have tax-free income in retirement and you qualify to make a Roth IRA contribution, then a Roth IRA might be a better choice for you.

You don’t necessarily have to choose one or the other.  You can contribute to a Roth IRA and a Traditional IRA as long as you meet the income requirements and your total combined contribution does not exceed the maximum limit of $6,000 or $7,000 if you are over 50.

Contributing to an IRA is a great way to save for retirement. The good news is that you have until May 17th to make a contribution for the 2020 tax year.  If you are feeling flush with cash due to your stimulus payments, you can put your extra money to good use by putting money away in an IRA.

Here is a useful calculator that will help you determine how much you can contribute into an IRA:  IRA Eligibility Calculator

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.  Please consult your financial, tax, and estate planning professional regarding your specific situation.

Below is a breakdown of some important components to this legislation, including what business owners, families and struggling individuals may need to know.

Stimulus Checks

Similar to previous relief bills, eligible American taxpayers will be receiving direct stimulus payments of $1,400 as part of the new bill. Similar to previous checks, those with incomes up to $75,000 will receive $1,400 payments, while families with children will receive $1,400 per dependent. Married couples with an income of $150,000 or less will receive $2,800.

The Treasury is directed to issue this credit as an advance payment (Economic Impact Payment) based on the information on 2019 or 2020 tax returns. This credit will be reconciled on the 2021 tax return. Taxpayers who are married to undocumented residents will be able to receive the stimulus payments. 

There will be a phase-out and income cap for individuals and couples who make more. Individuals earning between $75,000 and $80,000 will receive a lesser amount, with those making above $80,000 receiving no stimulus payment. The same applies for couples earning between $150,000 and $200,000 - with $200,000 being the cap.

For more information and to determine if you qualify for a stimulus payment go to:  Kiplinger Stimulus Calculator

Child Tax Credit

Special rules for 2021 include an expansion of the credit from $2,000 to $3,000 per eligible child under age 18 ($3,600 per child under age 6). The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July, will be reconciled on the 2021 tax return. 

For 2021, the increased credit amount (additional $1,000 or $1,600 per-child in excess of the present-law $2,000 per-child) begins to be phased-out at $75,000 ($150,000 for MFJ) and surviving spouse and $112,500 for head of household). Once the increased credit amount is reduced, the credit plateaus at $2,000, and the phaseout begins at $200,000 ($400,000 for MFJ).

Starting in July, the Treasury will issue advance payments of the child tax credit based on 2019 or 2020 tax return information. The Treasury is tasked with establishing an online portal to allow taxpayers to opt out of receiving advanced payments and provide information regarding changes in income, marital status and the number of qualifying children for purposes of determining each taxpayer’s maximum eligible credit.

For more information and to find out if what your child tax credit advanced payment and credit will be in 2021 go to: Kiplinger Child Tax Credit Calculator

Earned income credit

For 2021 only, the bill expands the eligibility and the amount of the earned income credit (EIC) for taxpayers with no qualifying children. The maximum credit amount for childless people will increase from $543 to $1,502. For 2021, taxpayers can use their 2019 income if it was higher than 2021.

The bill also includes permanent changes, allowing a married but separated individual to be treated as not married for purposes of the EIC if a joint return is not filed and the individual lives with a qualifying child for more than half the year. Individuals who otherwise would be eligible for EIC, but whose children do not have Social Security numbers, are now permitted to claim the childless credit. The disqualified investment income limit has increased from $3,650 (2020) to $10,000 and will be adjusted for inflation.

Unemployment Benefits

Eligible unemployed individuals may continue receiving an additional $300 in federal unemployment benefits through early September 2021.

Small Businesses & The PPP

Overall, the bill allocates around $50 billion toward assisting small businesses affected by COVID-19.

The Paycheck Protection Program will receive $7.25 billion, but the new legislation does not change the PPP’s end date of March 31, 2021.  Bars, restaurants and entertainment venues heavily impacted by the pandemic will also be eligible to receive grants from the government.

Low-income communities have been some of the hardest hit financially during the pandemic. In response, the government will be allocating $15 billion toward Economic Injury Disaster Loan (EIDL) Advanced Grants. Eligible businesses in low-income communities may be able to receive up to $10,000 each.

Employee Retention Credit

The Employee Retention Credit (ERC) will be extended through the end of 2021. With this refundable tax credit, business owners may claim up to $7,000 per employee per quarter.

2020 tax-free unemployment benefits

The bill provides a $300 weekly federal unemployment benefit through Sept. 6 and also makes the first $10,200 of unemployment payments nontaxable ($20,400 in the case of a joint return, but only $10,200 per spouse) in 2020 for households earning less than $150,000.

Retroactive advanced premium tax credit

An individual can receive an advanced premium tax credit (APTC) to lower their monthly health insurance payment (premium). If at the end of the year they have received more APTC than the credit allowed based on final household income, the taxpayer does not have to pay back the excess when filing their 2020 federal tax return. For those who have already filed their 2020 return, we are waiting for guidance as to how to get the refund.

COVID-19 Vaccination Distribution & Testing

Similar to previous legislation, a portion of the American Rescue Plan will designate funding for COVID relief. Around $15.05 billion will go toward vaccine production and distribution, while $50.8 billion will go towards testing, contact tracing, genome sequencing and global health response initiatives.¹

The Federal Emergency Management Agency will receive a portion of the funds as well.

State & Local Government Assistance

States, tribal governments and cities will receive $350 billion in federal assistance.

In addition, this legislation includes a $10 billion infrastructure program to help local government continue capital projects.¹

FEMA Emergency Food and Shelter Program

FEMA’s Emergency Food and Shelter Program will receive $510 million to support initiatives for homeless and struggling families including:¹

• Shelter and meals
• One month’s rent
• Mortgage assistance
• One month’s utility payments

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#1:  Background on Proposition 19

One of the most significant purchases you will make in your lifetime is the purchase of your home.   While you own your home, you will have to pay property taxes to the county where you live.  The initial property tax rate that you pay is based on approximately 1% of your home’s assessed value and is increased 2% per year.   (Keep in mind that the assessed value of your home is generally based on the purchase price but could be higher or lower depending on the “assessment” made by the county’s municipal property tax assessor.)

Now, if you purchased your home 20 years ago your annual property tax payments are probably pretty low compared to what new home owners would pay today.  The average price of a home in the San Francisco Bay Area in the year 2000 was approximately $500,000 so annual property taxes were about $5,000.   Today, that same home would cost approximately $1,600,000 and annual property taxes would be about $16,000.  A difference of $11,000 per year!  

The rising costs of homes in the Bay Area over the past 20 years has made the increase in property tax payments a major factor in deciding to buy another home.  Prior to the passage of Proposition 19, you could potentially qualify for a one-time tax property tax break if you sold your home and purchased a new one.  If you were at least 55 years old, purchased a home in the same county as your previous home, and the value of your new home was of equal or lesser value to your existing home, you would be allowed to transfer your original home’s assessed value to your new home and not incur an increase in property tax payments.  

For example, suppose you purchased your original home in the year 2000 and the assessed value of the home is now $475,000.  Your annual property tax payment would be about $4,750 today.  If your original home was currently valued at $1 million and you bought a new home for $1 million, you could transfer your original home’s assessed value of $475,000 to your new home and incur no changes in annual property tax payments. (Note: A Second exemption is also granted to severely disabled persons over 55 years old).

However, statistics show that when people move, they often move to a new county.  Secondly, most people will purchase 2 to 3 homes in their lifetimes.  Thirdly, there was a good chance that the assessed value of your new home would be much more than your current home’s assessed value.  Thus, prior to Prop 19, you were more likely to face an increase in your property taxes when you moved.   As a result, you see more people holding on to their homes and passing it on to their children.  The children would inherit the home with the same assessed value as their parents and thus, see no increase in their property taxes.

The old property tax law also created unintended negative consequences for people who tragically lost their homes to wildfires.  They were forced to move into a new home against their will, face undue financial hardship, plus have the burden of having to pay higher property taxes on a more expensive home.

#2:  Proposition 19 is a positive for older homeowners

With the passage of Prop 19, people who are either age 55 years or older, has a severe disability, or lost their home to a wildfire, may now blend the assessed value of their existing home to their new home and therefore realize significant property tax savings.  Secondly, these same people can transfer the tax assessment three times in their lifetimes instead of just once.  Thirdly, people can move anywhere in California and receive favorable property tax treatment.  They don’t have to stay in their own county.

For example, suppose a retired couple in their early sixties, owns a home in San Francisco County with an assessed value of $800,000 and pays annual property tax payments of $8,000 per year.  The current market value of their home is $1,200,000.  They wish to sell their old home and buy a home in Los Angeles County worth $1,500,000.   The assessed value of their new home will be calculated like this:

This couples will save $4,000 a year in property taxes because instead of paying $15,000 in annual property taxes under the old rule, this couple would pay $11,000 a year.

#3:  Proposition 19 is a negative for children who inherit homes

While Prop 19 can potentially help older homeowners save money on property taxes when moving into a new home, it increases property taxes on children who inherit their parents’ home.  Under the old rule, if a child inherited their parents primary residence, there was no change in the assessed value of the home and the child could live in it or rent it out as they wished.    For example, if a child inherits a home in San Francisco with an assessed property tax value of $500,000 but is now valued at $3,500,000, the child would incur no increase in property taxes and the annual property tax payment would remain at $5,000.  (This is one of the major reasons why homes in high priced communities tended to stay within the family).  If the child also inherited a second home which was other than a primary home (rental, vacation home, commercial property, etc.), the home was reassessed but up to $1 million was excluded from the reassessed value.  For example, if the second home’s current fair market value is $1,350,000, then the reassessed property tax basis would be $350,000 ($1,350,000 - $1,000,000).

Beginning on February 16, 2021, a child who inherits a home and decides to use it as their primary residence, the home will be subject to a reassessment with $1 million being excluded from the property tax basis.   Using the  first example above, if an inherited home’s fair market value is $3,500,000, the reassessed property tax basis would be $2,500,000 ($3,500,000 - $1,000,000).  The annual property tax payment would be about $25,000 under the new law versus $5,000 under the old law.

On the other hand, if the child chose not to live in the home and instead rents it out, the home would be considered “other than a primary home” and it would lose the $1 million exclusion and the inherited home’s assessed value would be the the full fair market value of $3,500,000.  The annual property tax would increase to $35,000 versus $5,000 under the old law.  As you can see, the annual property tax obligation would now be very significant regardless if the child lived in an inherited home or rented it out.  Rather than keep the home, a more affordable option could be to sell it and avoid the high annual property tax payment.

To preserve the existing property tax breaks under the old rules, some people are transferring their properties into an irrevocable trust.  Time is running out to do this, but If you wish to explore this option, please consult your Estate Planning attorney and your tax professional.

In summary, the winners of prop 19 are people over the age of 55, disabled people, and those impacted by wildfires in California. They can now move to a new home anywhere in California and know that they will not pay as much in property taxes as they would have under the old rules.   However, the losers are children who inherit a home as they will certainly have to pay significantly more in property taxes. The biggest winners though will be the real estate industry as more people will be inclined to sell their homes under this new law.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.  Please consult your financial, tax, and estate planning professional regarding your specific situation.

1.  What are you entitled to?

 Every qualified household will receive a check equal to the total amount of people in the family.  The calculation is based on $600 per qualified family member.  

 Here is what that can look like depending on your household:

If your Adjusted Gross Income is at or below the IRS threshold you will receive this full EIP Amount.  

2.  Who qualifies as your dependent?

Per the IRS rules, a person is considered your dependent if they meet the following rules:

•  Relationship to the individual who is eligible for the Payment: The child is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, grandchild, niece, or nephew).
• Child's age: Your child was under age 17 at the end of the taxable year.
• Child's citizenship: Your child is a U.S. citizen, U.S. national, or U.S. resident alien.
• Child's Residency: Your Child must have lived with you for more than half the tax year.
• Support for Child: Your Child must not provide over half of own support for the tax year.
• Child's taxpayer identification number: Your child has a valid work eligible Social Security number or an Adoption Taxpayer Identification Number (ATIN) that was issued before July 15, 2020.
• Children born in 2020:   Your child will be eligible to receive the original $500 rebate and the additional $600 rebate.

3.  What is the Adjusted Gross Income Threshold?

The Treasury Dept. limited the people that will receive the EIP checks to those that meet the following Adjusted Gross Income (AGI) thresholds: 

While the EIP is a 2020 tax year payment, The Treasury Dept. will initially use your 2019 AGI to determine your initial eligibility and will reconcile the payment with your 2020 AGI.

4.  What happens if your AGI is above the Threshold?

If your AGI is above the IRS's threshold, your base EIP amount will be reduced by $5 for each $100 your AGI exceeds the threshold until it is eventually phased out.

For example, if you are a single parent with 2 dependent children with a 2019 AGI of $80,000 your EPI calculation is:

If you are Married with 4 dependent children and your 2019 AGI is $200,000 your EPI calculation is: 

You can use these examples to calculate your personal situation.  As you can see, even if your AGI is above the established AGI limits, you can still receive an EIP payment.  Keep in mind that once the EIP Reduction is equal to your base EIP, you will not receive a payment.    You can also look at it this way:

•  An individual without children will not receive any rebate if their AGI exceeds $87,000.
• A couple without children will not receive any rebate if their AGI exceeds $174,000.
• A family of four will not receive any rebate if their AGI exceeds $198,000.

5.  What happens if your 2020 AGI is different from your 2019 AGI?

 As I said earlier, while the stimulus checks are a 2020 payment, the method to determine eligibility is based on your 2019 income.    This chart below shows what to do if your 2019 and 2020 AGI differ: 

6.  What do you do if you are eligible to receive the EIP but did not file a tax return in 2019? 

If you did not file a tax return because your income was below the filing requirement threshold, you can receive payment by filing your 2020 tax return and applying for the Recovery Rebate Credit.

 7.  What if the tax filer died in 2020?

If the tax filer passed away in 2020 and they qualified for the EIP check, an EIP payment will be sent to them.  If a check is not received, their heirs can apply for Recovery Rebate Credit.

 8.  How do you find the amounts of your  Economic Impact Payments?

IRS letters:  If eligible, you should have received IRS Notice 1444 for the first Economic Impact Payment and Notice 1444-B for the second Economic Impact Payment.   

On-line:  You can also find out the status of your stimulus check by going to the IRS website at: https://www.irs.gov/coronavirus/economic-impact-payments

9.  How will you receive your Economic Impact Payment?

If the IRS has your banking information already on-file, they will send payment via a direct deposit to your bank.  If they do not have your banking information on file, they will send you a check or debit card.

 10.  What is the Recovery Rebate Credit?

If you are entitled to receive a check and you received the full amounts of both Economic Impact Payments you do not need to complete any information about the Recovery Rebate Credit on your 2020 tax return. You have already received the full amount of the Recovery Rebate Credit as Economic Impact Payments. If you are entitled to payments, you received the full amounts of both Economic Impact Payments if:

•     Your first Economic Impact Payment was $1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying child you had in 2020; and.

•     Your second Economic Impact Payment was $600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying child you had in 2020.

If you did not receive the full amounts of both Economic Impact Payments, you may claim the Recovery Rebate Credit on your 2020 Form 1040 or 1040-SR.   Again, the Treasury Dept. might have missed sending you payment.  Or, you might not have qualified initially because your 2019 AGI was too high but now you qualify in 2020 because your AGI is lower than the required threshold.

 The IRS seems to never make things easy for us.  Hopefully after reading all of this, you have a better understanding of how you qualify for the stimulus check, how you will receive it, and what to do if you did not receive a check.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.

And this may not be temporary. There is much discourse around the fact that the shift to work-from-home (WFH) may be permanent for many.  If you are one of the many newly working from home, it might make sense to assume that you’d qualify for a home office tax deduction. But in reality, this tax deduction can prove to be a bit tricky. 

What Is a Home Office Deduction? 

The home office deduction allows you to translate the expenses of using your home as an office into a tax cut. In other words, it might take into account the fraction of space you use to work, mortgage interest or rent, insurance, utilities, repairs or depreciation. There are two requirements for individuals to qualify:

1. Regular and exclusive use: The use of a portion of your home for business must be regular and exclusive. The work area cannot double as a personal space. 
2. Principal place of your business: Your home must be the principal location at which you conduct business.²

This is meant to apply to self-employed individuals, not employees. Many freelancers, for instance, take home office deductions. The following are considered self-employed individuals:

• Sole proprietors and independent contractors 
• Members of partnerships that carry on a trade/business 
• Other individuals in business for themselves³

Under Our Current Tax Policy 

Despite increasing deduction amounts, many individual tax cuts were not included in the Tax Cuts and Jobs Act of 2017, such as home office deductions for employees.⁴ If you’re self-employed, chances are you may already be taking the deduction. If you’re a W-2 employee, however, it’s no longer possible. Unfortunately, that means a lot of workers transitioning to remote work cannot take the deduction. 

What if I Qualify? 

If you fit into the self-employed category described earlier, and you don’t already, you might be able to take advantage of the home office deduction. 

The IRS offers two options to calculate your deduction: the regular method and the simplified option. The regular method requires you to compute your home office expenses. The new simplified option simply multiplies a prescribed rate by square footage, along with some other stipulations.⁵ Again, you’ll have to prove regular and exclusive use, as well as this being the principal place of your business to the IRS. 

If you qualify for the deduction, it’s highly recommended that you consult a financial planner or tax professional. 

What if I Don’t Qualify? 

Many workers hoping to qualify for this deduction due to the pandemic, unfortunately, won’t. Luckily, employers are now making plans to return to on-site work, if it hasn’t resumed already. To ensure safety in this gradual transition back to normal, 83 percent of companies are altering safety measures in the workplace.⁶ 

There’s some more hope, too, for employees who don’t qualify for the home office deduction. Check if your state deducts unreimbursed business expenses from your state income tax. Some states may deduct expenses for home offices if certain requirements are met.

Altogether, don’t be discouraged if you can’t get the deduction. The switch to remote work in response to COVID-19 won’t be permanent. 

One of the main features of The Tax Cuts and Jobs Act was a reduction in the number of income tax brackets that was designed to lower the taxes for most tax payers.  To account for the expected lower taxable income, the IRS reduced the amount of tax that was withheld from your paycheck starting in late February of 2018.

The Tax Policy Center estimated that two-thirds of American household would pay less under the tax law, 9% or so would pay less, and the rest would experience no changes.  However, these estimates assumed that tax payers would make the proper adjustments in their tax withholding to account for the loss of exemptions and deductions that were eliminated under the new tax law.  

  A family of four in 2017 would have received $4,050 exemption for each family member.  That meant your taxable income was reduced by $16,200.  However, in 2018 a tax exemption for each family member was eliminated.

To offset the impact of the lost exemptions, in 2018, the standard deduction was increased to $12,000 for single filers and $24,000 for married couples.   For those households who claim the standard deduction this was a big boost.  In addition, the child tax credit was increased to $2,000 per dependent child under 17.  The income threshold to qualify for the deduction was increased to $200,000 for single filers and $400,000 for married couples.  Prior to the new tax law, only single filers with income below $75,000 and married couples with income below $55,000 could qualify for the child tax credit.

For higher income families, these adjustments may not have been adequate to offset the loss of certain deductions.  Households who were accustomed to claiming more than the standard deduction – “itemizing deductions”, are now limited by a number of restrictions.  First, there is now a $10,000 deduction limit in the amount of state income tax, real estate tax, and personal property tax payments that can be taken.  This limitation had a significant impact on high income earners and homeowners in states like California and New York as these items represented a bulk of the itemized deductions.  People who purchased a home after December 2017 also was limited in the amount of mortgage interest that they could deduct to the first $750,000 of the mortgage loan.  Again, this change Impacted people in states with high real estate costs like California.  Household also could no longer deduct the interest that was paid on Home Equity Lines of Credits unless that loan was directly related home improvement costs.

If you paid more in taxes in 2018, your situation in 2019 could be worse if your payroll tax withholding is not increased.  That is because you will have 12 full months of reduced payroll tax withholding.  To change your Federal payroll tax withholding you will need to fill out a new W-4 form.  Your employer can provide that to you or you can go directly to the IRS Website.  By simply following the directions, the form will guide you through the appropriate number of allowances that is appropriate for you.  The more allowances you have, the less tax is withheld from your paycheck and vice versa.  The result that is calculated is designed to apply to the average household with non-complex tax issues.

However, if you are a high-income earner, both spouses work, have additional income from investments or other sources, itemize your deductions, and own a home, it is important that you go through the additional Deductions and two-earner worksheet to accurately determine the appropriate withholding.  If you are still unsure of the appropriate withholding for your household, I recommend speaking to a tax professional.

This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information.

1. Gather All of Your Receipts

While you may be diligent about saving your receipts throughout the year, there is a good chance that they are simply stored in a file folder, or box, with little regard to how they are organized. Before you sit down with your tax professional take the time to sort through your receipts and get them organized so you can find what you need when it comes to itemization, The main categories that you should sort your receipts into include:

• Home and office expenses: This should include utility bills, repairs, and maintenance.
• Vehicle expenses: Include receipts for maintenance and repairs, fuel, license and registrations, rental or lease agreements, and a log of personal and business miles. 
• Education costs: Have receipts for tuition, fees, books, and other education expenses.
• Childcare: Your child care provider should give you a form listing the amount paid, but having your canceled checks or receipts can be beneficial. 
• Medical costs: Keep track of your out of pocket premium costs and other expenses such as deductible payments, prescriptions, and copays.
• Charitable donations: Have receipts for all monetary and good donations to non-profit charities.

2. Get All Your Necessary Paperwork Together

A quick way to interrupt your tax preparation is by realizing you are missing a form that you need to complete your tax return. While most of your documents should be received by the end of January, there may be some stragglers. Make a list of all the forms you expect to receive regarding income, investments, and education expenses, and make sure that you have them before you begin your preparation. Some of the forms you may need to wait for include:

• W2s and 1099s which will provide you with your earned income.
• K-1s which will provide income earnings from a partnership.
• 1098 which will detail the interest you paid on your mortgage for the year.
• 1098-E details the amount of interest on your student loans.
• 1099-B will come from your brokerage company and give a statement of the gains and losses of your investment accounts. 
• 1099-DIV will list the earnings from mutual funds such as dividends and capital gains.
• 1099-G will provide the amount of unemployment benefits.
• 1099-INT will provide the interest income received from your bank accounts.
• 1099-R will list the distributions taken from pension or retirement accounts.
• 1099-SA is your Social Security benefits statement.

3. Determine the Deductions You will Want to Take

There are a number of deductions you can take depending on your filing status. By knowing which deductions might work for you, you can gather the information you will need ahead of time to make sure you have the appropriate figures when requested. To take advantage of most of the common deductions, make sure to gather information on:

• Your retirement plan contributions.
• Your yearly charitable contributions.
• Mortgage interest.
• Points for mortgage refinance.
• Moving expenses for active duty military members and those moving for a service-related reason.
• Property loss due to theft.
• Gambling losses.
• Losses on investments.
• Energy-saving home improvements.
• Self-employment tax.
• Home office expenses if self-employed.

4. Make Sure You Have All the Necessary Forms

The specific tax forms you will need will largely depend on your individual tax situation. Most taxpayers will need to file either a 1040, 1040A, or 1040EZ to report income for both employers and employed and self-employed workers. For self-employed workers, you may need a Schedule C to record business expenses. and most taxpayers will need a schedule A to itemize their deductions. You will also need to make sure that you have the same tax forms for each state and locality that you worked in if state or local taxes are required. If you use a tax preparer or account to file your taxes, they will have all of the forms that your return will require. 

5. Make a Tax Preparation Schedule

It is easy to get overwhelmed and wait until the last minute to get everything together for your tax preparation. You can eliminate stress by setting a schedule that will allow you to break the preparation into small tasks each week before your meet with your preparer. Set a time to organize receipts, scan necessary documents, gather forms, etc. The final item on your schedule should be the meeting with your tax preparer making sure you schedule it far enough out that you don't feel rushed. 

Don't let preparing for the upcoming 2019 Tax season stress you out. Try one or all of the organization tips listed above to help be better prepared and make the process of tax preparation easier on everyone. 

_{This content is developed from sources believed to be providing accurate information.  It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.}

Donor-Advised Fund Basics

A major benefit and why individuals choose to use a DAF is that it allows people to give a portion of investments or property  to charity in order to receive a tax deduction immediately. However, the holder isn't required to decide on their preferred charity at the time of donation. This can be a relief to individuals who have a desire to give to charities but are unsure where to donate.  Instead, the account is managed by a nonprofit institution or an eligible charity organization so the IRS can be assured that the funds are not being mismanaged. This organization will typically charge a small fee to account holders in exchange for suggesting the best investment strategies to grow the assets over time.

How to Use a Donor-Advised Fund

When the assets are in the DAF, the individual holder has the option to choose how conservative or aggressive those funds are invested.  As their investments grow, more assets are available to charitable organizations down the road. Some people will use a DAF instead of setting up some type of trust for a particular organization while others will front-load their account to give themselves enough time to grow their assets. Typically, individuals will set up a DAF during a high-income year in order to avoid paying full taxes on their income while still being able to support a noble cause. Any charity that has been approved by the IRS is eligible to benefit from a DAF.

How to Donate to a Donor-Advised Fund

If you choose to open a DAF, the first step is to choose which provider of DAFs  you want to invest with.  The three major providers are Charles Schwab Charitable, Vanguard Charitable, and Fidelity Charitable.  Each one will have their own fees and restrictions for holding onto the funds. Account holders can then store away part of their assets into the DAF. This can be anything from cash to private stocks to real estate to bonds. You are then eligible for the tax deduction as soon as the assets are promised to an approved charitable organization. The funds inside this account are entirely tax-free, which means they can grow without interference from the IRS.

Using Your Discretion

Charities ebb and flow throughout the year, changing strategies, leadership, and even focuses. Those who own DAF are allowed to observe these changes as a means of having control over which causes the support. But DAF holders are not technically required to donate the funds to a charitable organization at all. Holders may choose DAF over trusts because there are fewer limitations to a DAF. Ultimately, there are more freedoms for account holders to manipulate their assets within a DAF.

Donor-Advised Fund Tax Information

Any contributions made to a DAF are classified as a 501(c)(3) gift. The IRS allows the individual to give up to 50% of their Adjusted Gross Income in cash and up to 30% in other types of assets.¹ Liquid gifts such as cash are taken at market value, but illiquid investments will need to be evaluated by an independent appraiser for the exact monetary value. Individuals who want to exercise specific investment strategies will need to check with the organization managing their account. Each one will have their own list of approved means of growing the funds.

Is a Donor-Advised Fund Right For You?

There is a lot to consider when it comes to getting the most out of DAF. However, it may be a good choice for individuals who have highly appreciated assets, are in a high income bracket have a desire to receive immediate charitable donation deduction, but may not be ready to give to specific charitable organization(s) right away.

^{1 https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions}

_{This content is developed from sources believed to be providing accurate information.  It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.}

Increase in Take-Home Pay 

The immediate impact to you will be to your paychecks. The good news is most everyone (the IRS estimates 90% of Americans) will see an increase in take-home pay, with the largest discount going to those in the highest income brackets.  Starting immediately in 2018, the new tax law reduces the amount of Federal taxes withheld from your salary, thus increasing your take home pay.   The bad news is that depending on your income level and how much deductions you are able take, you could actually end up owing the IRS when you file your tax return because too little was withheld from your paycheck throughout the course of the year.

Changes in Deductions

The new law doubles the standard deduction to $12,000 for individuals and $24,000 for married people.  It also eliminates or changes the rules for many itemized deductions. As a result, it is believed that the vast majority of Americans will have to choose to take the standard deduction because the sum total of their itemized deductions will be lower than the standard deduction.  

For Californians, deductions will be significantly reduced by two changes.  The first is the deduction for local property tax, state and local income and sales taxes (SALT) which is now capped at $10,000. This will increase the tax burden of workers in California because incomes here are in most cases higher than the National Average.  In addition, property taxes alone can be well north of $10,000.  Prior to 2018, the California state tax and Property tax deduction were unlimited and represented a significant portion of a taxpayer's itemized deductions.  

The second is the cap on mortgage interest deductions from home purchases from $1 million down to $750,000 (the new cap only applies to new purchase mortgages, not existing ones).  This change will also have a significant impact to Californians where homes easily well above $750,000.  Additionally, the new Act eliminates the deduction for interest on home-equity debt, such as HELOCs (home equity line of credits).              

Wealth Transfers and Taxes

The estate tax now allows an exemption on wealth transfers of up to $10 million for an individual, double what it was in 2017. The exemption is indexed to inflation after 2011, which means an even larger exemption in this year. The exemption doubles for couples.

Health Care and Taxes

The Act repeals the tax penalty on individuals without health insurance that was part of the Affordable Care Act. However, those who have purchased or currently enjoy high-end health insurance policies can deduct some of the cost. Some economic analysts believe that eliminating the individual mandate will cause health care premiums to rise. While most Americans have health insurance through an employer, those who must buy heath care on the open market could find insurance to become more expensive in a few years.

Corporate and Business Taxes 

The biggest change for businesses to come out of the Tax Cuts and Jobs Act (TCJA) is the establishment of a flat 21% tax rate for corporations. 

Some small businesses will receive a break as well. Small businesses where the profits “pass through” to the owner were used to be taxed at the individual tax rate. So if your business was doing well, your profits could be taxed at up to 40%. Under the TCJA, the maximum tax rate is now 29.6%.

The Bottom Line

Will the new tax law benefit you, and if so, how much? That depends on what you currently earn, where you live, and whom you ask. Conservative leaning think tanks like the Brookings Institute suggests that the economy will benefit and that after the income tax cuts expire, the deficit will drop significantly, offering a boom to stocks and jobs. On the other side, the belief is that the short-term tax savings will end up costing the middle-class in the long run, and raise the deficit such that no economic boom can make up for it.

_{The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.}

By spending a couple of weekends or so cleaning out your closets, storage rooms, and garage your home can benefit in three ways. One, your home will benefit by the reduction in clutter. Second, others can benefit from your unused items if you donate them to charity. Thirdly, you can benefit financially because charitable donations can be deductible on your tax return.

Below are seven things to think about if you are considering donating your old household items to charity.

1. Do I Qualify To Take A Charitable Deduction?

If you would like to donate your old household goods and would like to claim a tax deduction, the first thing you should determine is if you are eligible to take a tax deduction. The Charitable Donation deduction is available to you if you are also eligible to itemize your deductions on your tax return (Schedule A). All tax payers are eligible for the Standard Deduction. For 2017, the standard deduction is:

Filing Status                                   Standard Deduction

Single                                                    $6,350

Head Of Household                              $9,350

Married Filing Jointly                           $12,700

Married Filing Separately                      $6,350

You are eligible to take itemized deductions if the total of all your deductions is greater than the Standard Deduction for your Filing Status. For example if you file Married Filing Jointly and your mortgage interest deduction for 2017 is $10,000, your state tax deduction is $2,500, and your charitable deduction is $3,000. Your total itemized deductions of $15,500 exceed your standard deduction of $12,700. Therefore, you can itemize all your deductions on Schedule A.

2. Who Should I Donate My Items To?

The good news is that there are plenty of charitable organizations that you can donate your household goods to. However, to qualify for the charitable deduction, the organization must be a Qualified Charitable Organization that is tax exempt and eligible to receive tax-deductible charitable contributions. Examples of qualified organizations are churches, Goodwill, Veterans groups, and The Salvation Army. Examples of non-qualified organizations are country clubs, political organizations, and social clubs. To find out if a charity qualifies click here.

3. What Is the Deadline?

If you want to make a tax deductible donation, you have to do it by December 31^st and charitable donations are only deductible in the year the donation is made. That is why it is a good idea to donate most of your charitable contributions in the summer when you have the time and energy to do it. It gets more challenging to take this project on when you are also dealing with school plus the Holidays.

4. What are the limits?

Keep in mind that there is a limit to how much you can deduct on your tax return for charitable donations. Depending on the organization, your deduction will be limited to 30% or 50% of your Adjusted Gross Income. This will probably only impact you if you plan on donating large dollar value items. For most household items, this shouldn’t be an issue. However, if you do fall into this category, any amount over the limit can be carried over and deducted the following year.

5. Do I Need To Track My Donations?

You must have a written record of your donation to deduct it on your tax return. The written record must show the name of the organization, date, location of contribution, fair value of contribution, and description of items donated. For any non-cash contributions less than $250, you will need a receipt from the organization as the record. For donations greater than $250 but less than $500, you will need a written acknowledgement (letter of some kind) as the record. If the donation is over $500 but less than $5,000 you will also need documentation that shows how you acquired the property (purchase, gift, inheritance, etc.). Anything above $5,000 will generally require an appraisal as well.

6. How much is it worth?

Turbo Tax has a free tool called “It’s Deductible” which give you options for determining the market value of your donation depending on its condition. It also allows you track your donations throughout the year. To find out more go to Turbo Tax.

7. What Can’t I Donate?

There are certain items that charities will not take. They will not take your broken or unusable items. Basically, it has to be in working order and can be used or re-sold by the charity. It is best to check with the charity you are working with to find out what items they will not accept. 

For more information on de-cluttering your home and giving to charitable organizations at the same time, go to http://www.home-storage-solutions-101.com/donate-household-items-to-charity.html

An FSA is an employer sponsored benefit and it allows you to voluntarily set aside (contribute) up to $2,600 per year in a special account with your Employer on a pre-tax basis. If you are married, yours spouse can also set aside another $2,600 with their employer. The benefits of an FSA are:

1. Contributions are excluded from your gross income
2. No employment or federal income taxes are deducted from the contributions
3. Withdrawals are tax free as long as they are for qualified medical expenses

 If your employer sponsors an FSA, you will usually sign up during your annual medical enrollment period. It is important to properly estimate how much you believe you will spend in medical and dental expenses for the year because you will have to state that during your enrollment.

The total amount you indicate is then divided by the total amount of pay periods (bi-weekly, semimonthly, monthly) and deducted from your paycheck. As you incur medical or dental expenses throughout the year, you submit proof of payment to your employer who will then reimburse you for those expenses from your FSA. If you do not use all the money in your FSA account at the end of your Employer’s Plan year, your Employer may provide you one of two options:  A grace period, usually 2 months, to use the money in your FSA. The other option will be to allow you to carry over up to $500 into the next Plan year.

The drawback with the FSA is that any money not used up will be forfeited. That is why it is very important to know what your employer’s plan year is and only put as much money in your FSA as you think you will spend.

The National Priorities Project conducted a study of the 2015 budget and  found that our Government received $3.8 trillion in revenue. 55% came  from tax revenue, 30% from Trust Funds (Social Security & Medicare  Taxes, Customs, etc.) and 15% from borrowing. 

The Government then took that money and spent 65% on mandatory spending  (Medicare, Social Security, & other social services) and 29% on  discretionary spending (Military, Education, Transportation, etc.). The  remaining 6% was used to pay down the interest on the National Debt. 

The top three expenditure areas for our Government in 2015 was Medicare  and Health: $986 Billion, Social Security: $895 Billion, and Military:  $598 Billion. See the chart below for more interesting detail.

1. Use IRS Free File to file an extension. IRS Free File allows taxpayers to prepare and e-file their taxes for free. It can also be used to e-file a free extension to file request. Midnight April 18 is the deadline for receipt of an e-filed extension request. Free File is accessible for tax return preparation and e-filing through Oct. 17. It is only available through IRS.gov.
    
2. Use Form 4868. Fill out a request for an extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The deadline for mailing the form to the IRS is April 18. Form 4868 is available on IRS.gov/forms.
    
3. More time to file is not more time to pay. Requesting an extension to file provides taxpayers an additional six months (until Oct. 16) to prepare and file taxes. However, it does not provide additional time to pay taxes owed. Taxpayers should estimate and pay any owed taxes by April 18 to avoid a potential late-filing penalty. To avoid penalties and interest, pay the full amount owed by the original due date.
    
4. Use electronic payment options to get an automatic extension. An extension of time to file will automatically process when taxpayers pay all or part of their taxes electronically by April 18. There is no need to file a paper or electronic Form 4868 when making a payment with IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or by debit or credit card. Select “Form 4868” as the payment type. Keep the confirmation as proof of payment.
    
5. The IRS can help. The IRS offers payment options for taxpayers who can’t pay all the tax they owe. In most cases, they can apply for an installment agreement with the Online Payment Agreement application on IRS.gov. They may also file Form 9465, Installment Agreement Request. If a taxpayer can’t make payments because of financial hardship, the IRS will work with them.