Your Money Under the IRS Microscope
Your Money Under the IRS Microscope
Your money may be under the IRS’ microscope in 2024. You may have heard cries of “Tax the Rich” recently in articles, speeches, primary posturing, and most probably at the State of the Union. New IRS audits of business aircraft use are just the beginning of a new level of scrutiny to come. It seems U.S.A. millionaires and billionaires are evading more than $150 billion a year in taxes, adding to growing government deficits and creating a “lack of fairness” in the tax system. Can a “minimum tax” be far behind?
Of course, if you are wealthy you might want to argue that tax hikes for the top 1% will not fully solve the entitlement crisis, prop up Social Security for the foreseeable future and instead will hurt economic growth. States that have raised taxes on the ultra-rich have not increased revenue, in fact the millionaires and billionaires just picked up and moved to a more tax-friendly state.
On another note, the good news for the mega-wealthy is that inflation eases the 2024 tax bite on capital gains, estates, and other wealth-related income. Next year, long-term investors will see more of their capital gains fall into lower tax rate brackets. If you turned your market savvy into millions, you can pass along even more of your estate tax-free to heirs, even while you’re still alive.
Capital Gains Tax
If most of your income is a result of your investments, you know that when investments are long-term, the profit they produce is taxed at a lower rate. The tax rates on the proceeds from assets held for more than a year are 0%, 15%, and 20%. Which one applies depends on your overall income and filing status.
Thanks to changes made by 2017’s Tax Cuts and Jobs Act (TCJA), there are separate income brackets for the three capital gains tax rates. The earnings to which the three long-term capital gains tax rates will apply in 2024 are shown in the table below:
| 2024 Tax Year |
Capital Gains Taxable Income Brackets by Filing Status | |||
| Long-Term Capital Gains Tax Rate | Single | Head of Household | Married Filing Jointly or Surviving Spouse |
Married Filing Separately |
| 0% | $0 to $47,025 | $0 to $63,000 | $0 to $94,050 | $0 to $47,025 |
| 15% | $47,026 to $518,900 | $63,001 to $551,350 | $94,051 to $583,750 | $47,026 to $291,850 |
| 20% | $518,901 and more |
$551,351 and more |
$583,751 and more |
$291,851 and more |
(In addition to capital gains tax rates listed in the tables, higher-income taxpayers may also have to pay an additional 3.8% net investment income tax.)
Capital Gains Taxes on Estates and Trusts
For 2024, the maximum zero capital gains tax rate applies to estates or trusts worth up to $3,150. The top earnings level for an estate or trust to be taxed at 15% is $15,450. The 20% rate applies to the entities worth $15,451 or more.
Five years ago, the TCJA expanded the estate tax exemption amount even more (at least until the TCJA expires at the end of 2025 or is changed before then). The exemption also is adjusted for inflation. For 2024, the inflation adjustment means an individual can leave heirs a tax-free estate of up to $13.61 million. That’s per person, so a married couple can protect $27.22 million from estate taxation. When an estate exceeds those tax-year amounts, then and only then is the federal estate tax, which can go as high as 40%, assessed on the overage.
Estate and Trust Tax Rates
There’s also a tax, with its own rate schedule, on earnings from trusts and estates. This applies to income that trustees choose to retain rather than distribute to beneficiaries. The estate and trust tax rates for 2023 and 2024 are shown in the table below:
| Trusts and Estates Tax Rates and Income Brackets | ||
| Rates | 2023 | 2024 |
| 10% | $0 to $2,900 | $0 to $3,100 |
| 24% | $2,901 to $10,550 | $3,101 to $11,150 |
| 35% | $10,551 to $14,450 | $11,151 to $15,200 |
| 37% | $14,451 and more | $15,201 and more |
(A dozen states and the District of Columbia still have either an estate or inheritance tax.)
Tax-Free Gifting
Want to share your wealth while you are still around to get a thank you for your generosity? Giving away some of your assets could help keep your some of your estate out of Uncle Sam’s hands when you pass on. The tax code allows you to give a specific amount, known as an annual exclusion, in gifts to others. This will help reduce your estate’s value and there’s no tax ramifications for the gift recipients.
For 2024, that exclusion amount is $18,000 per person. Like the estate tax exemption, the gift exclusion limits each year are per person. That means if you’re married, you and your spouse each can give a combined $36,000 to the same person in 2024, and there’s no familial relationship requirement.
Also, the gifts are not limited to dollars. You can give assets valued up to the limit, such as gifts of real property and family heirlooms. This is a good way to dole out your estate the way you want and keep its value under the amount that will trigger the federal estate tax. as long as you follow the rules, you won’t face any gift tax, and your gifts are not taxable to the recipients.
However, if you go over the lifetime gift exclusion, you will owe a 40% tax on those excessive gifts. The lifetime gift exclusion is the same as the annual estate tax exemption amount. Again, thanks to inflation that’s $13.61 million (or $27.22 million per married couple) in 2024.
REACH OUT TO US: Wealthy enough to worry about the latest estate and other wealth-related taxes and the inflation adjusted amounts? When it comes to inter-generational income and how to enhance it, preserve it, and distribute it wisely, things can get complicated. To be sure every transaction is tax-advantaged, and every outcome perfectly positioned for the future, it is important to work with a financial and tax adviser like those at TFG Financial Advisors. Even if your wealth is still in the aspirational stage, you should consider working with a wealth management professional to protect your nest egg. Feel free to contact me, Cory Lyon, directly at 561-209-1120, with any questions. At TFG Financial Advisors, our goal is to assist you in making informed decisions. We believe in personalized asset management, and I act as a fiduciary for all my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
Site Map:
Aureum Wealth Management, LLC, is registered as an investment adviser with the SEC. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. It is not affiliated with or endorsed by the Social Security Administration or Medicare. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Tax rules and regulations are subject to change at any time. All investment and insurance strategies have the potential for profit or loss. Information presented is believed to be current. Photos and videos are used for the singular purpose of enhancing the website. None of them are photographs of current or former clients. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours.
FAQs About QCDs For The Charitable Minded
FAQs About QCDs For The Charitable Minded
Did you know that, if you are at least 70½ years old, you can make tax-free charitable donations directly from your IRA?
Making a Qualified Charitable Distribution (QCD) can exclude up to $100,000 annually from gross income while benefitting your favorite charity. These “charitable IRA rollovers” are gifts that would otherwise be taxable IRA distributions!
It’s easier than you think to make a QCD. Instruct your IRA trustee to distribute directly from your IRA to a qualified charity of your choosing. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income each year. If you file jointly, your spouse (if 70½ or older) can also exclude $100,000 of QCDs.
A QCD can provide several potential benefits. It may be a suitable giving strategy for donors who:
- Are required to take a minimum distribution from an IRA, but don’t need the funds and would face increased tax liabilities if they took the distribution as income.
- Would like to reduce the balance in an IRA to lower future required minimum distributions.
Some Rules Apply:
- Your QCD cannot be made to a private foundation, donor-advised fund, or supporting organization. Beginning with 2023, you will be able to make a one-time QCD of up to $50,000 to a charitable remainder annuity trust, a charitable remainder uni-trust, or charitable gift annuity.
- QCDs count toward satisfying any Required Minimum Distributions (RMDs) that you would otherwise have to receive from your IRA. The caveat is that distributions you actually receive from your IRA (including RMDs) and subsequently gift or transfer to a charity cannot qualify as QCDs.
- If you plan to offset your RMD with a QCD, the transactions must be done in conjunction with one another. You cannot take an RMD and retroactively use those dollars to make a QCD. That would conflict with the “first-dollars-out rule,” which states that the first dollars taken from your IRA will satisfy any required RMD.
Cautionary Notes:
- You aren’t allowed to deduct QCDs as a charitable contribution on your federal income tax return — that would be double-dipping!
- Any QCD must be an otherwise taxable distribution from your IRA. If you’ve made non-deductible contributions, then normally each distribution carries with it a pro-rata amount of taxable and nontaxable dollars. However, a special rule applies to QCDs — the pro-rata rule is ignored, and your taxable dollars are treated as distributed first.
- If you have multiple IRAs, they are aggregated when calculating the taxable and nontaxable portion of a distribution from any one IRA.
Remember you can also name a charity as beneficiary of your IRA, and the charity will not have to pay any income tax on distributions from the IRA after your death.
- After your death, distributions of your assets to a charity generally qualify for an estate tax charitable deduction. If a charity is your sole IRA beneficiary, the full value of your IRA will be deducted from your taxable estate for purposes of determining the federal estate tax (if any) that may be due. This can also be a significant advantage if you expect the value of your taxable estate to be at or above the federal estate tax exclusion amount currently $12,920,000.
- If retirement funds are a major portion of your assets, another option to consider is a Charitable Remainder Trust (CRT). A CRT can be structured to receive the funds free of income tax at your death and then pay a (taxable) lifetime income to individuals of your choice. When those individuals die, the remaining trust assets pass to the charity.
- Finally, another option is to name the charity and one or more individuals as co-beneficiaries.
Reach Out To Us: A QCD may be better for you than a charitable deduction because the IRA assets go directly to charity, so donors don’t report QCDs as taxable income, and don’t owe any taxes on the QCD, even if they do not itemize deductions. Some donors may also find that QCDs provide greater tax savings than cash donations for which charitable tax deductions are claimed. If you have securities that have grown in value since you bought them, it may make more sense and provide greater tax benefit to donate them to charity instead of taking a QCD. We can help you make educated choices for charitable giving in tandem with your estate-planning attorney. Contact Cory Lyon, Financial Advisor, at 561-209-1120, or Paul Wieseneck, CPA, at 561-209-1102, for questions on this topic.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
Site Map:
Aureum Wealth Management, LLC, is registered as an investment adviser with the SEC. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. It is not affiliated with or endorsed by the Social Security Administration or Medicare. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Tax rules and regulations are subject to change at any time. All investment and insurance strategies have the potential for profit or loss. Information presented is believed to be current. Photos and videos are used for the singular purpose of enhancing the website. None of them are photographs of current or former clients. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours.
Is A 1031 Exchange Right For You?
Is A 1031 Exchange Right For You?
What is a 1031 Exchange? It is a way to leverage your gains. It allows sellers of investment or business-use real estate to defer paying capital gains, and depreciation recapture taxes, when they use the proceeds of the sale to purchase one or more additional pieces of investment or business-use real estate.
IRS Code 1031 helps investors because deferring tax results in more money to invest in new property. Generally, any real property can be exchanged, provided it is held “for productive use in a trade or business” or for “investment” and is exchanged for property of “like-kind” that will also be held for one of these same purposes. To qualify for tax deferral, sellers must comply with the strict timelines and rules set forth, and proceeds of the sale should be placed with a third party known as a Qualified Intermediary, until the purchase.
There are 4 types of Exchanges:
- Simultaneous Exchange occurs when two properties are exchanged simultaneously.
- Forward Exchange, occurs when a property is sold (Relinquished Property) and another property is purchased (Replacement Property) within 180 days.
- Construction Exchanges, or Build-to-Suit Exchanges, occur when the taxpayer uses the funds from the sale of the Relinquished Property to construct improvements on the Replacement Property.
- In a Reverse Exchange, the Replacement Property is purchased before the sale of the Relinquished Property.
It’s pretty obvious why a 1031 is a valuable tool for real estate investors. Instead of paying taxes, increase your down payment and your buying power to acquire a more expensive replacement property. The flexibility of a 1031 allows you to exchange one property for several others, or consolidate multiple properties. Cash flow and overall income can both be increased through a 1031 tax-deferred exchange. For example, a vacant parcel of land that generates no cash flow or depreciation benefits, can be exchanged for a commercial building that does.
It’s easier than you think to save tax on capital gains. A 1031 Exchange can be done in 5 steps:
- While contemplating the sale of an investment property, contact our TFG Accounting and Tax Professionals beforehand about a 1031 Exchange instead.
- Enter into a contract and open an escrow account on the relinquished property.
- Identification period of 45 days after the closing of intent to “exchange.”
- Finalize the exchange with the replacement property within 180 days.
- Enjoy a fully tax deferred transaction!
FAQs:
What Qualifies As A Like-Kind Property?
Properties must be of the same nature or character, even if they differ in grade or quality. Here are a few examples of a like-kind exchange:
- A vacant property for an industrial building
- An apartment building for a medical complex
- A hotel for a shopping center
- A retail property for a multi- or single-family rental
- An office building for interest in a Delaware Statutory Trust (DST)
Can I Pull Proceeds Out After The Sale Of The Relinquished Property?
No, the full value of relinquished property must be reinvested; this includes the proceeds from the sale and the debt the investor had on the property.
How Do I Avoid/Defer Paying Taxes On Selling My Rental Property?
Investors can leverage a 1031 exchange to sell their rental property so long as the rental property meets all the requirements outlined by the IRS. For example, a rental property can be relinquished and fractional ownership in a DST may be acquired, deferring capital gains. If a property is sold and not exchanged, the sale will be taxable.
CONTACT US: A 1031 Exchange is a popular estate planning tool and wise choice if you are looking for a way to increase your cash flow, depreciation benefit, consolidate properties, or relieve yourself of a high maintenance situation. Understanding the rules and timing is key to a successful exchange and preserving your wealth. Turn to Fuoco Group CPAs and TFG Financial Advisors for the skilled guidance you need to navigate a 1031! Contact me, Paul Wieseneck, CPA, Tax Director & Financial Advisor, at 561-209-1102 or at PWieseneck@fuoco.com.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.