Atlantic Capital Management

Atlantic Capital Management (131)

Friday, 06 December 2013 00:00

Practical Tips for Year-End Charitable Giving

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Happy Holidays! Whether you’re trimming the tree, lighting the menorah, or still trying to recycle Thanksgiving leftovers into new recipes, we at Atlantic Capital Management wish you happiness and prosperity this holiday season!

In keeping with the spirit of giving common during this season, we’re going to use our final column of the year to talk practically about year-end giving as it relates to both charitable and estate-planning scenarios. Beyond the obvious good that comes from making gifts or donations to the many charitable organizations that serve the public interest, there are also some significant tax advantages to charitable giving that make it an important part of any wealth-management strategy. Our experience serving our clients over the past 27 years has given us a lot of insight into the best practices for year-end giving; we’ve distilled the most practical into the list below.

Give to qualified organizations: There are many qualified, reputable organizations serving thousands of worthwhile causes; there are also many unqualified, disreputable groups willing to take your money. Use the Exempt Organizations Select Check tool at the irs.gov website to verify the legitimacy and tax-exempt status of the group(s) you choose to give to.

Pay attention to the rules and guidelines: As you might expect, the IRS has a plethora of rules and guidelines that cover charitable giving. For example, monetary donations of any amount, to any type of organization, must be documented properly in order to qualify as tax deductions. So whether you bought popcorn from the Boy Scouts or put up the cash for a new wing at the local hospital, you’ll need to provide bank records like canceled checks or statements to corroborate your contributions. Keep good records of your donations, including dates, amounts, organization names, etc. If you donate material goods to an organization, get a receipt if you do it in person, or keep written records that include time, date, and value of goods if you utilize a drop-off box or unattended location. Finally, be mindful of the technicalities involved in the tax exemptions; for instance, you cannot deduct charitable giving if you use any of the “short forms,” like the 1040A or 1040EZ, when you file your taxes.

Don’t forget about gifting for estate planning purposes: While it’s not in the same purview as charitable gifting, don’t overlook estate-related year-end giving, either. You can reduce the overall value of your estate, and thus the overall estate tax burden, by making annual gifts to family members, organizations, and even your spouse! The annual exclusion rule allows individuals to make an unlimited number of gifts of cash or property, up to $14,000 each, completely tax free. Married couples (including same-sex couples in Massachusetts) can combine their annual exclusions, effectively doubling the amount of each gift to $28,000 even if only spouse makes the gift.

Friday, 22 November 2013 00:00

Federal Tax Law and Same-Sex Marriage

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This past summer, the Internal Revenue Service and the Treasury Department announced that couples married in jurisdictions that legally recognize same-sex unions will, commencing with the 2013 tax year, be classified as “married” for Federal tax purposes. This policy change not only affects those couples residing in states where same-sex marriage is legal, but extends to couples who were married in a supporting jurisdiction but physically reside in a jurisdiction that does not support same-sex unions. Currently, 14 states support legal same-sex marriages: Massachusetts, California, Connecticut, Iowa, New Jersey, Delaware, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Maine, Maryland and Washington comprise the complete list. As we approach the end of the 2013 tax year, we thought it might be helpful to recap the changes, and talk a little bit about what to expect next year if you’re filing for the first time as a same-sex couple.

Taken at face value, the changes are pretty straightforward: as part of the new ruling, same-sex couples will be classified as “married” by the IRS, meaning that same-sex unions will be treated the same as “traditional” marriages from a Federal tax classification standpoint. This includes income taxes, gift taxes, and estate taxes, and also encompasses all areas of IRS tax law where marriage classification is a factor. Personal exemptions, dependency exemptions, filing status, standard deductions, IRA contributions, child and earned income tax credits, and deductions based on employee benefits are all driven by marriage classification when filing Federal taxes. Under the new ruling, legally-married same-sex couples are now able to file using either the “married filing jointly” or “married filing separately” status available formerly only to those partners in “traditional” unions.

As with seemingly everything related to the IRS, however, there are some wrinkles. First, the ruling applies only to legally-binding same-sex marriages, regardless of domicile. Domestic partnerships, civil unions, and other common-law relationships do not qualify. Secondly, and perhaps most importantly, the new ruling requires that partners in a same-sex union must change their Federal tax status from “single” to “married.” With this change in status comes the very real possibility that marginal tax rates may change unfavorably, and eligibility for certain exemptions and the classification of certain types of employee benefits might be compromised. Given that no one likes to be surprised at the last minute when the IRS is involved, we advocate getting ahead of the status change early, and understanding how it will affect your tax bracket and eligibility going forward. While fairly uncomplicated scenarios may not require the services of a tax preparation specialist, we strongly advise seeking advice from a qualified tax attorney or CPA if you suspect (or discover) that your change of status may have unanticipated downside. If you’ve got a significant estate, or are in a situation where changes to gift-tax status brought about by the new classification might come into play, it’s probably best that you consult a professional who can help you understand the nuances.

Finally, several of the states listed above legalized same-sex unions a number of years ago; as a result of the statute of limitations incorporated as part of the new ruling, partners in same-sex marriages can choose to file amended returns for tax years 2010, 2011, and 2012 if they so choose (and if the obvious benefit of doing so exists!).

For more information about tax and estate planning for the same-sex IRS classification change, including referrals to qualified CPAs and tax attorneys, we invite you to contact us to schedule a free and confidential consultation.

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