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Sit back and listen while Mike Bernstein shares tax tips and personal finance tricks on video.

Deducting Contributions to Charity

Deducting Contributions to Charity 1080 1080 Bernstein Financial Services

What I see most of all is the deductions estimated incorrectly. By and large, people undervalue clothes and they overvalue the other goods. So unless you know the exact value of the other goods, be sure to ask your tax professional.

You buy a couch for eight hundred dollars, sell it ten years later, and give it away ten years later. You’ll make maybe $100 or $250 max (if it’s in really good shape). Clothes, on the other hand, if you go into a thrift shop and look at the cost of the clothes, they range from $3 or $4 dollars up to around $15 depending on the item. Average $7 to $9. So when you give away bag of clothes how many articles are in there small bag maybe 20-25. A big bag maybe 30-3. Multiply it times the $7 to $9. That’s what you get per bag. Usually people make that very low when it’s much higher.

You can separate your donations into several several times throughout the year or all at once.

For those of you that are retired, taking minimum distributions, and also giving to charity, don’t itemize, you’re not getting that charity deduction. So, the way you get the charity deduction is to have the RMD go directly to the charity. You can call your broker, or people that handle your IRA, tell them you want to give to a qualified organization. Don’t take that portion. Send it directly over to the charity, then that portion of the RMD is not taxable, which lowers your tax and lowers your AGI or other items in your return. 

A lot of people give goods they don’t need away to thrift shops, churches, various charitable organizations. Of course, they need to be qualified general 501c3 organizations.

What You Need To Know About Gift Taxes

What You Need To Know About Gift Taxes 1080 1080 Bernstein Financial Services

You’ve all heard about giving gifts to children. If you give $15,000, is it income to them? Can they deduct it? What happens? Read on to learn about Gift Taxes in the United States.

First of all, you don’t deduct gifts and whoever receives it does not pay taxes. It’s a transfer of money or assets.

Also, if you give less than $15,000 in 1 year, you don’t have to fill out any paperwork. If you give more than $15,000 in 1 year, you’re supposed to fill out a form called 709 Gift Tax Return and there’s no tax to pay if you’re under the exclusion. For most states, the exclusion is $11.5 million. Sometimes a little bit less. So, if you give a couple hundred thousand dollars, no tax.

Why do I have to fill out the form when there’s no tax? Well, when you die, there’s that $11.5 million dollar estate exclusion. And the amount over the $15,000 added up over the years reduces that estate exclusion. So, we keep track of it. You say, “well my estate isn’t worth that much, why do I have to do that?” Well, you never know. You might inherit money or win the lottery. Who knows what might happen. Life insurance. Congress might lower the exclusion. So fill out the form.

Now, it’s $15,000 per person, so I can give 17 different people $15,000 each. I would not have to fill out the form. But if I give 1 more than $15,000. You have to fill out them form.

Now, if I’m married, my spouse and I can give $15,000 each to a child. And if that child is married, we can give $15,000 to the spouse too. Add it up and that’s $60,000 in 1 year. You can give without filling out any forms. You can do that every year.

So, you can see there’s lots of ways… For example, if you do it in December and January, you have two separate years. You can give $120,000 to them, for a downpayment on a house or something like that.

Additional gift tax items you’d have to worry about when you gift assets… let’s say you give a house when you’re alive to a child. Well the gift is the equity position. So if the house is worth $200,000 and there a loan on it for $50,000, you’ve made a gift of $150,000. Is there gift tax on that? No, not unless you’re a sure of your exclusion, which is very high. You have to fill out a form? Yes. It’s two or three pages long. Not difficult to take care of that.

Let’s say I want to give a $100,000 gift to my two children and it’s March. Well, that’s over the $60,000 I talked about. So, how about you gift them $60,000 and you loan them $40,000. You say, you have to sign this note, you owe me $40,000. Well, you don’t have to charge interest, that’s okay. And guess what you’re going to do on January 1 of next year? You’re going to forgive that loan. It’s a gift for the next year. It’s allowed. You have to do the paperwork. What have you avoided? You don’t have any tax, unless your estate goes over $11.5 million because you haven’t used it in your exclusion. But you’ve avoided forming the 709 Forms, which can be a little bit of a hassle for people.

living trust

Tax Considerations for Living Trusts

Tax Considerations for Living Trusts 600 600 Bernstein Financial Services

What Is A Living Trust?

A living trust is also referred to as a revocable living trust. The reason that they’re called that is because while you’re alive and feeling well, not incapacitated, you can revoke them and change them. A lot of people wonder why they might need a living trust? How does it save me on taxes? I don’t have a lot of assets, what does that mean? I do have a lot of assets, what does that mean?

There are several parts to a living trust, sometimes referred to as living trust package. Part of it relates to end of life decisions. Part of it relates to beneficiaries; however, it relates to naming trustees to handle all of my affairs if I’m incapacitated or die. All these are different parts of living trust. And the “package” allows all of these items to be addressed.

The less assets you have, the less size family you have, the less you need it. But even single people need living trusts to ensure their affairs are properly protected if they become incapacitated.





Which Trust Is Right For My Family?

There are four main types of trusts. An A trust, an AB trust, a disclaimer trust and a ABQ-tip Trust.

The A Trust is for a single person or a married couple. For couples, when the first person passes away all the assets go to the second person. They avoid probate. However, if the first spouse dies, the assets go to the second spouse. And if the second spouse gets remarried and the assets somehow end up in the hands of the new spouse, the beneficiaries of the decedent a long time ago, may end up not getting the money.


Now, in the AB Trust, when it’s split, when I first die that half becomes irrevocable instead of revocable. And the remaining spouse is able to change their half to different beneficiaries different trustees, things like that. But they can’t change the irrevocable side. In other words, AB Trusts protect the first to die, making sure their money go where they expected it to go. Now most spouses, trust each other to do the right thing, but it’s someone the spouse s/he might meet when I’m gone that I don’t trust. So, the AB Trust at least preserves a portion of your assets.

The Disclaimer Trust is a little bit in between the A and the AB Trust. It allows the surviving spouse to construct the AB trust at that time, per their discretion. Do they usually? I don’t think so. Usually ends up all in their hands, they don’t want to mess with a B trust and doing a tax return once a year.

What is a Q-tip trust? Well q-tip trust (I won’t spend a lot of time on it) is an additional trust if you want certain assets over the exemption amount so that there’s no estate tax. So you achieve both goals. You achieve the goal of it still being the decedent’s trust for control and you see achieve in not being no estate tax on the first death. This Q-tip Trust, sometimes called the C Trust.

Funding a Living Trust

Think of your trust as a treasure chest for yourself if you’re incapacitated or for your children when you die. Your treasure chest will contain assets like real estate, bank accounts, investment accounts, business ownership of stock, an S-corp…

What about IRAs? Put trust as the beneficiary on those. Some attorneys like you to make individuals the beneficiaries bypassing the trust. The problem is if it’s a big IRA and you put the individuals as the beneficiaries, they’ll get it all at once. Do what they want with it and you may want the trustee handling it, thus leaving the trust as a beneficiary. The downside is you may end up getting a full distribution all at once to the trust after you die and could cause a little more tax at the front end. So get some advice. What about life insurance? I believe that the trust should be the beneficiary. That way the trustee can handle those assets in case of your income has to be your death.


Estate Taxes & Living Trusts

Estate taxes are taxes on the transfer of the estate of a deceased person, which applies to property worth over approximately $11.5 million, as of 2020.So, for example, if I have $8 million and I pass away, there’s no estate tax. If my wife and I have six million dollars together and I die, it’s three million my portion no estate tax.

What if our estate is worth $30 million? I know that’s not a lot of us out there. $15 million each. I’ll pay tax on the excess over $11.25 and the $32.5 million at 40%. Okay, how does a revocable living trust help us? Let’s say this is for $15 million and I die. Well if I do an AB trust, I can take half of that and apply my $11.5 to the $7.5 million. And then it stays being accounted for. And my spouse has the other $7.5 when she dies. Let’s say her house is worth $9 million, she’s still under $11.5 for her no estate tax. So it’s an AB Trust. There’s a way to do it without an AB Trust by using a tax tool called “portability” where you preserve your half of the $23 million.


Trust Beneficiaries

Let’s say, after you passed, your surviving spouse does not remarry, but one of your children passed. So should that child’s share go to their children or to the other sibling? You’ll indicate that in your trust, so it has to be thought out. It’s a little stressful at first to finish the trust but with the right explanation from an attorney you can make the proper choice. Obviously those choices will change based on the number of children, the size of the estate, the ages of the children, etc.

Now, when you’re designating beneficiaries, you’ll sometimes want to designate someone else in order to get it into the trust. So, for example, if you want an IRA or pension to go in to your trust, you can make the trust the beneficiary of that IRA and that goes to the trust. The trusted ministers that may pay the tax may distribute the income out, but it gets it or you can name the IRA the beneficiaries.


Same with life insurance. I mentioned before that you make the beneficiary of life insurance to trust and the trust will administer it because or need care yourself trust you will help with that.

Bernstein Financial Services Inc. provides a wide range of services to individuals and businesses in a variety of industries. We do not provide legal advice. These videos are for entertainment purposes only.

Tips To Know About 1031 Exchanges

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1031 Exchanges are derived from a person by the name of Starker, a taxpayer who said to congress, “I have a rental here. I want a rental over there, don’t make me pay tax on the sale.” So Congress eventually passed a law that said, okay. You can sell your rental property to further gain into another piece of land or another piece of rental property, as long as you follow some very important rules.

These rules are as follows, generally:

You cannot receive any cash out of the deal. That would be called “boot taxable”.

You can’t be relieved of debt along the way. In other words, the loan on the next one cannot be less than the first one.That would be called “boot taxable”. So there would be a gain that comes across and some of it might be taxable if you don’t do it right.

Oftentimes I’ll get a question, “Hey mike, I want to sell my rental for five hundrend thousand, pay off my two hundred thousand dollar loan, get three hundred thousand. I’ll take all the three hundred thousand and buy a rental property worth three hundred thousand. I didn’t get anything. Is that okay? No, you relieved of two hundred thousand debt in that example.

So basically, if you can remember if you start with five hundred thousand dollar value, you need to end up with five hundred thousand of value.

If you do that you’re gonna usually be just fine. You can do more and add in more loan or more money but you can’t do less. Well, you can but if you do less, you’ll start reporting gain.

Also people say, “well can I refinance in the middle because I want to get cash out.” Well, there’s a way to do it, you just can’t do it during the event. So refinance it first, then do your exchange. Or do the exchange, get the new property, and then refinance it.

Some other items people indicate to me, “Mike, I really don’t want to buy another rental. I want to buy a vacation home or a main home. Well you’re not supposed to do that the intent matters; but, there’s a way to get it done. Eventually, if you plan properly and you sell your rental property, and you buy a rental property. Next, you’ll need to run it out for a couple of years. Congress pretty much said if you’re gonna run it out for a couple years, you know this ain’t your home residence. You try to move into it, they’re gonna agree it was a deferral. Technically the coach says the intent was not to rent it out or not to make it a rental property intent. It was to be a residence and they can prove it, the exchange will be not allowed.

From the date you close the sale property you have 45 days to designate or identify the new property or properties.

You have 180 days from the close of the sale to close on the new property. You don’t meet those, the exchange is no good.

Also you can’t touch the money in between. That means, you have to use an accommodator. If you sell the property, get the money, buy the new property, you’ve violated the rules it has to go to an accommodator. The accommodator holds the money and they disperse it to the new escrow for the new property. So it might seem a little cumbersome and it costs a little bit extra money to do the exchange rules. Not that hard really when you concentrate on it and if you’re going to defer a lot of gain it’s well worth worth the money. Now if you say to me, “Mike but I do want to get a little cash out.” Well that’s fine to pay a little tax on part of the gain if you can manage it. So talk to your tax advisor and get an accommodator involved.

There is such a thing called a reverse starter, where you can buy first then sell your property. It’s called doing a reverse way because be very careful talk to the accommodator talk to prepare to get it to happen right so you don’t mess it up.

There’s a little bit of extra tax work done especially if you’re going to defer from two to one or from one to three. Timing is very important and there’s allocations that have to be made.

Now you know a little bit about it don’t try and do it on your own.