2025 Year-End Tax Planning Strategies for Individuals & Families

There's lots of factors and when we start talking about the new tax bill, you are going to start seeing how those different factors come into play. So first just as an overview, we want to just talk about just the concept of tax planning and what does that mean and what does that look like. So with proper tax planning, often most people want to reduce their current tax liability or future tax liabilities and that might be the focus. For others, it might be about maximizing and managing cashflow, but there's all these different things that to consider when you're talking about tax planning. When we put together the presentation, our goal was to put a lot of information onto the deck so that you do have something to walk away from as reference. There's a lot going to be a lot of information and we're not going to be able to cover everything in complete depth, but we want to give you kind of the basics so that when you walk away and you spend some time going through this, that this will be helpful and lead you to the right path.

So the first thing, if attended prior seminars, I've always said you have to get organized as tax practitioners. Often we find out about transactions after they happen or when it's time to prepare the tax return. But this year and this year, it is very, very important with a lot of the new changes to really understand things as of today so that you can make different adjustments before December 31st and which can impact your taxes for the current year or future years. So you really want to understand what are your income sources, how much income you're expecting expenditures, what deductions that you have, and then consider do you want to make any gifts, retirement contributions, or other items that will make a direct impact.

Cashflow management is also a key item. Last year at this time I believe the individual interest rate was 8%, so currently it's at 7%, which is still very high. So the tax authorities do want you paying in your taxes as you go along. So it is important to calculate what your estimated tax liabilities are and meeting the different requirements to avoid underpayment penalties. Otherwise those penalties can add up pretty quickly. So the next two slides we just talk about just the concepts of income and deductions. From an income perspective, you really want to understand your income, so does it make sense to defer income, accelerate income if you have capital losses, is there an opportunity to use those losses against income if you have gains, can you harvest losses and really trying to understand where things are before year end and the same thing from a deduction perspective.

Does it make sense to prepaid deductions or defer them or kind of bunching some of those deductions? So we'll talk a little bit about some of these different concepts. So that's the general view about overview about just tax planning and the most important things to consider as far as the individual provision updates for the one big beautiful act which was effective July 4th. You're going to see as we go through this information that there's just a lot of moving parts in here, things that go into effect in 2025, things that go back into effect in 26 concepts that we're going to revert back for the tax year 2030, so through December 31st, 2029, and there's lots of different income limitations and phase outs and other things. So it's not a very straightforward act. They really have made our jobs difficult. So we want to go over some of the highlights so that you can think about those when you're planning for this year.

So the bill did preserve the highest individual tax rate of 37%. It was supposed to go to revert to 9.6% after this year. So that is good news that that highest individual tax rate is at this point supposed to be in effect for the next five years. Mortgage interest limitation. So for those who have taken out mortgages actually after December 15th, 2017, I believe the slides may say December 31st, if your mortgage is greater than $750,000, there is a phase out of that deduction. So that is going to remain standard deduction and personal exemptions. In 2017 when different adjustments were made, the standard deduction was increased and the personal exemptions were removed. So that still remains in play at this point, so you do get a higher standard deduction. However, there are not individual personal exemptions.

Miscellaneous itemized deductions, this is now with the new bill is permanently disallowed except for educator expenses of up to $600 and one of the other items around a MT exemptions is they have kind of increased the different exemptions, but there are certain phase outs in play. So when they made the prior adjustments in 2017, taxpayers may not have fill into alternative tax, but with some of these phase outs that may come into play and normally most taxpayers may not be subject to a MT and a MT is an alternative minimum tax. But if you do have things like large deductions or incentive stock options, there are other factors that may because of the calculation of the tax under the alternative minimum tax regime other than the regular tax regime that there could be an additional tax. So it's always something to think about and ensure that when you're calculating your tax that you do consider if a MT would be a factor.

So the next two slides, we kind of put tables together just to talk about some of the different changes and as you go through it, you'll kind of start seeing a pattern where certain things are going to into effect after December 31st, 2025. Some are going into effect for the current year and which of the things are kind of temporary or permanent and what that means with some of the different adjustments, some of the different adjustments that are being made now are may revert back to the prior rules at the end of 2029. So right now, let's just really focus on 2025 and 26 because those are the most eminent years and to see what changes or what may impact those particular taxes. I previously talked about tax rates and the standard deduction, but one key item that many of you may be interested is in the salt cap, which is being increased to $40,000 for single and joint taxpayers or 20,000 for separate taxpayers. So going to be that goes into effect this current year. So for the 2025 year and for 2025 and 2026, that will be the cap. And then for the 27, 28 and 29 tax years, there will be a slight adjustment for inflation.

So some other changes that were made, I mentioned earlier about the mortgage interest deduction. I know a lot of the talk that you may have heard on this about the no tax on tips or the no tax on overtime. Those two items actually do go into play for 2025. The thing is that when you talk about it and you just say no tax on something, you think, okay, well then there's nothing else I have to think about. However, there are adjusted gross income limitations that will come into play. So it's not just that you don't report those items, those items become non-taxable as long as the income doesn't exceed that.

Another item that's kind of interesting is this peace limitation on itemized deductions. So some of you familiar with taxes may recall prior to 2017 that once you calculated your itemized deductions, then there was a reduction that was applied based upon your adjusted gross income. So they brought this back but it's calculated a bit differently and this actually we'll go into effect for the 2026 and future tax year, so after December 31st, 2025. So this gives a little bit of an opportunity in 2025 to maybe accelerate some deductions before this particular limitation goes into effect. And there's also a couple of interesting extensions and enhancements of 5 29 plans, which some of you may find interesting. So there's lots of different things going on and we're going to try to cover as much as we can given the time probably could spend two hours or more just going over the individual tax provisions, but we've really tried to make this a compact session where we provide you with a lot of the information that you can then take away and then see what are the different items that impact you.

This is a slide kind of gets into that concept that I was talking about, different types of limitations that apply and this I think does create confusion as well. So in the tax world, when you talk about adjusted gross income, those are all the different kind of gross income items. Your wages, interest, dividends, maybe rental income, IRA income, things like that which come up to your total income. So that is adjusted gross income and you'll see in the tax rules there are different items that phase out or get eliminated after a certain amounts of adjusted gross income. Then there's modified adjusted gross income MAGI, and that is where you take your adjusted gross income and you adjust it for certain items. Some of it may be like passive losses or if you have foreign earned income exclusion, you need to add that back. But there's certain things that you then have to adjust your A GI to come up with your modified adjusted gross income and you'll see that with this like the child tax credit, they use a limitation of 400,000.

The state and local income tax deduction is 500,000. So the numbers are all across the board with different things. So this is really where it comes. Organization really becomes very important so that you can go through and understand what may impact you and then understanding your income level and then will it be subject to a phase out or not. These specific provisions actually do take effect for the 2025 tax year. So that's one thing that's kind of consistent with these particular items, but again, the income levels are all across the board and how it gets played out. So those are the things that you have to be really careful of when you're looking at these items.

All right, so the one item for itemized deductions I wanted to spend a little bit of time on is this salt deduction because previously it was $10,000. So if you were going to itemize in your tax return, your salt deduction was limited to $10,000. Now you have an opportunity if you are itemizing to have a greater deduction for the 2025 and 2026 tax years and forward. So just to kind of clarify, a salt deduction would include state local taxes, your income taxes, property taxes, and some states it may also be personal property taxes like taxes on a vehicle or a boat. So when you're looking at this, this becomes a little bit of an opportunity where in the past, since you were limited, you may not have considered doing anything with these different deductions, but from a planning perspective, really looking at your property tax payments, does it make sense given your overall deductions to maybe make a payment in December or have the payment made in January depending upon what your particular situation is, should you make an estimated tax payment an income tax payment? If you historically have balances due in April or with your tax extension, it may make sense to make a payment due to make sure that you have paid in at least the 40,000 to take benefit of that full deduction. Right now the sole deduction is supposed to revert back to 10,000 in 2030. So when we get closer to there, we can talk about post 2029 planning, but for now you want to make sure that you can take advantage of that particular deduction.

So charity deductions, Jessica's going to be covering a lot on charity, so charity is a little bit confusing the way that they have done certain things, but the one thing that if will kind of keep saying again, again, again and again, that for 2025 the way things are designed, it may be more beneficial to make some deductions in 2025 rather than in future years. And there's two reasons for that is that because there is a small disallowance and the itemized deduction limitation which will be effective after December 31st, 2025, but we'll cover a little bit more later on in the presentation.

I kept this in here, this form 10 99 K if you've attended prior sessions, we've talked about this and this has been all across the board. The reporting the way it is for 2025, part of the new bill is that if you receive more than $20,000 in gross payments and can deduct more than 200 transactions, you would be issued a 10 99 K. So that's a good outcome with that. Previously they were noting that it might be $600 and similar for 10 90 nines, NE Cs and 10 99 miscellaneous reporting, they've also raised those thresholds. So starting in the 2026 tax year, the threshold is going to be raised to $2,000. So previously you would receive these forms if your income is 600,000. So the one thing to note is that although you may not receive a 10 99 form, if you have received income, you are still supposed to be reporting it. So this, if you're a business owner, this may reduce the number of forms that you need to produce with the higher limitation. Also, it becomes a bit challenging to make sure that you've reported all of your income if you are expecting to receive these types of forms and your income is less than 2000, but that'll be for 2026.

We want to just touch base on these Trump accounts. Again, there's lots of different provisions included in there, but I kind of liken a Trump account to A IRA accounts. So the one, my main difference is that with the Trump accounts, with an IRA account, there is an income requirement of an earned income requirement, but with these accounts there are not. So this is a good way to save for your children so that they do have something available to them later on. And we just want to reference that these accounts are out there and you can start to make contributions January 1st, 2026. The good thing is that the accounts grow tax free until the amounts are withdrawn and we love to sit here about qualified opportunity funds and this may not really apply to many people, but the new bill did preserve the original QOF program.

The one thing that we did want to point out is that after December 31st, 2026, so that you do some planning for next year, there are some other additional requirements and some additional reporting requirements. So we wanted to make sure, sure that you are aware of this, that not to expect that when you're hearing that something is just preserved and the same, that it's exactly the same, it's not exactly the same and you really want to make sure that you are meeting the different reporting requirements going forward because there is significant penalties if that is not completed.

Okay, so this is our second polling question. Do you review your tax and financial information throughout the year? So we'll give you, the system will automatically move forward after 60 seconds. So if you're looking for CPE credit, definitely make sure that you do answer the question before we move on while we're waiting. As I was stating earlier with these different changes, there is a lot of opportunity in 2025 with regarding to your deductions and other items. So I think that really is going to be a good item for you to focus on to make sure that if you are itemizing and meeting those sold caps or other items, there's definitely a lot of opportunity there.

I'm going to move on to the results I think. Okay, good. So for those of you that say no to not reviewing your tax and financial information, if you walk away from anything from this session is that this is the year to do that because there are definitely some opportunities to reduce your taxes. Okay, so we've always included in here planning with retirement plans because that is a good way to maximize any of your deductions by taking the appropriate deductions, being careful about required minimum distribution so that you're not in a penalty situation and when you're considering charitable giving, maybe potentially using a qualified charitable distributions. So those are always important things. So the qualified charitable distributions has been adjusted for inflation. So for 2025 you can contribute up to $108,000. So if you are in a situation where you are taking RMDs and you are thinking of being charitable, this is probably the best way to make that contribution to minimize your overall taxes.

And just remember that with RMDs they did increase the age in which you need to start taking RMDs, but a lot of times we get this all the time where it's the first year and somebody forgets because they have not been taking RMDs and then we go through the process with them to get that reported and request that there's no penalties being to be accessed. In the previous tax rules they did kind of reduce the penalty for missing it from 25% to 10%, but you don't want to do that and you still can request a waiver to have any penalties reduced.

One of the planning things we talk about is making IRA contributions each year. It is a good way to move money into an account to kind of grow tax free and also where you can take deductions. Many people also utilize the backdoor Roth contributions with a Roth IRA. Once the money is in the account and then you go to take the money out later on, that money is tax-free. So that really becomes a great vehicle to grow wealth and to do so in a tax-free way. And what happens in this with a backdoor contribution is that people will make the contributions to a traditional IRA and then a non-deductible IRA and then roll it a few days later, roll it into a Roth and some people use this strategy or a pioneer, some employers do allow for this with there are different various plans so you can always check with your employer to see if there is a Roth component that is allowed as part of the plans that they have offered to you as an employee.

So some of the changes, I may have talked about these earlier, but with the secure act and 2024 around IRAs, which is one of the ones that I think is quite interesting is that if you have a 5 29 plan for your children and you have unused funds in previous acts, it allowed you to roll over up to 35,000 into a Roth IRA. So that's a good way to be able to remove the money from the 5 29 plan penalty free and then to set your child up for the future. So that was a really good vision that was put into play over a year ago.

Tax credits just to highlight with some of the credits that are available, child tax credits, residential energy credits. So one thing with this particular bill is that the clean vehicle credit ended September 30th, 2025 and residential energy credits ended are set to expire December 31st. So if you're making any final home improvements to see that that are eligible for these credits, you need to make sure that that's done before December 31st. Other credits that might be available to you are education or dependent care receivers credits, so you don't want to lose sight of credits, just kind of understanding your particular situations to see if some of these credits may applicable.

I guess the notable changes for this year is the impact of the new bill. Other items is that the IRA contributions and other things do continue to go up year upon year for inflation and if you are of the age 60 to 63, there is a new higher catch up limitation that you can avail yourself of. So if you are an employee, definitely take a look at your 401k and just to see if there is anything that you want to, an additional contributions that you should be able to make and you don't want to just assume that your employer is going to do it correctly. So if you have the ability to adjust that, do so. And then on the flip side, when you get to January 1st, you may need to adjust it again. You may want to reduce it or increase it depending upon your overall income.

So in summary, the key items for individuals this year is to want get organized. I think it was 8% of you said that you don't review your tax information during the course of the year, so hopefully you will take the time to do that. Definitely going over your income deductions and possible credits, would they focus on any of the salt taxes and charitable contributions since you would be able to get maybe able to maximize those deductions this year. But other things to review include stock options, tax loss harvesting and just considering other things around your overall tax situations have you maximize your contributions to these tax deferred accounts. Most employees will be going through their open enrollment process at this point in time. So as you set things up for 2026, do you have a health savings account? Is that something that you can benefit from and to give you a little bit of a deduction?

So think about those things as you're closing out the year and setting up your benefits through open enrollment. The firm EisnerAmper does publish a personal tax guide and so that will be coming out in early of 2026. Now we need to make sure that we update it for all the new changes, but the last year's guide is out there and can go over the various concepts and give you a lot of information and it's a very good reference tool. And with the due bill, the firm has also published many, many newsletters and talk about that. Actually Jessica just recently published a newsletter about charitable contributions and when she talks about that you'll understand what I'm saying about some of the things that are very, very complex. So with that, I wanted to go through, I think that would finalize the individual section and I can pass this on to Sarah to kind of talk about estate and gift considerations.

Sarah Adkisson:Awesome, thank you. So I, like Patricia said, I'm going to be covering estate and gift tax considerations. One thing that you're going to notice is that there weren't really as many impacts from the one big beautiful bill on the estate and gift tax after lots of speculation about whether or not there would be a chance here to completely repeal the estate and gift tax or really bump it up to a much higher number. It ended up being a little less dramatic I would say. So it did permanently increase the gifts and estate tax exemption, but only really moderately to 15 million for context. Right now, this 2025 lifetime exemption, it's almost 14 million, so not a huge jump or increase, but really the main thing that it did was that it gave a good amount of stability for people. This was scheduled to I people were calling it fall off a cliff, right?

It was scheduled to be cut in half and beginning in 2026. So now with this permanent increase, people are going to have a lot more certainty in doing planning going forward. So that's really the main thing that we got out of the one big beautiful bill in terms of these date and gift tax exemption. Now this amount is going to be indexed for inflation just as it has been for quite a while. It is going to be indexed for inflation starting in 2026. The way that the bill is written though, it actually indexed the inflation for 2025, so there may be a bit of a bump up from that 15 million. We'll see how the IRS interprets that. In terms of income tax rates for estates and trusts, there was really no change, which is both good and bad. So it retains the four rate structure for fiduciary income tax returns, the 10 40 ones and everything at 10, 24, 35 and 37.

And it did retain those kind of compressed tax brackets. So trust and estates are going to hit that 37% a little bit a lot faster than say an individual. Well, and then in terms of the generation skipping transfer, I always just put it together in my mind. Really with the estate and gift tax exemption, it continues to be aligned with that estate and gift tax exemption. So for anyone who doesn't know, the generation skipping transfer tax exemption is a second layer of exemption that you have if you were leaving or gifting assets to a generation that is two or more below you. So it also permanently increases to 15 million stays aligned with these state and gift tax exemption. So no big surprises, really just certainty in terms of those things. The federal estate and gift tax rate did stay at 40%. Now if you live in a state that has estate level estate tax, that rate could go up to much higher than that.

So keep in mind 40% is just for the federal part. Portability remains permanent. So portability is ability for one spouse to port over their unused exemption amount upon death. So if let's say two spouses have between them $28 million and one spouse has 13 million of those and they die in 2026, 2 million of their unused exemption amount will be allowed to be given to essentially ported over to their surviving spouse, excuse me, sorry, the annual gift tax. The gift tax annual exclusion that will be increased this year. It's adjusted for inflation. I'm sorry, it will not be increased this year. It's typically adjusted for inflation, but it's adjusted in a thousand dollars increments. So if it doesn't tip over into a high enough amount with the inflation, it stays the same. So for this year it's going to stay at $19,000. Now marriage couples are able to do what is called gift splitting.

So they can give up to $38,000 to one individual and it is not considered to be over that annual exclusion amount. So that's a planning opportunity there. And of course payment of medical and educational expenses if they're paid directly to the medical providers or the educational institution that is excluded from gift tax and that is sometimes something where you can prepay those expenses as well and not have them included as a gift, as a taxable gift because there weren't really any huge changes. Really the planning is not going to change significantly for most people. There wasn't a huge jump in terms of the value of the exemption amounts. So no real earth shattering things to take into consideration. Taxpayers are going to want to continue to use their exemptions as available and continue to use up if they've already used up the $30 million to every year, consider using up the annual inflation adjustments. Taxpayers with estate that are less than $30 million might need a little extra planning as particularly if they're getting close to the $30 million, they may want to utilize certain techniques like taking advantage of the annual exclusion amount to reduce some of their taxable state, particularly if they're getting close to that 30 million level.

In terms of completing gifts, you want to make sure that you understand all of the implications there. When you complete a gift you've given up, I think it's dominion and control as the classic case law language. When you do complete a gift, your basis in that asset is given to the donee. The donee is going to step into the shoes of the donor. It is called carryover basis. If you do complete a gift, that value is not included in your estate when you die and that's the fair market value is not included, but the donee does not include a step up in the basis when the donor dies. So there's both good and bad in terms of completing a gift during your lifetime. You manage to shift the asset out of your estate and potentially any growth as well, but your beneficiary does not receive that step up basis upon your death.

If you do continue to hold that asset upon your death, your beneficiary, the person who receives it, does get a step up in basis. So any gain that they may have after receiving that asset will only be taxed to the extent that it exceeds the fair market value at the time of the person's death. It's very, very complicated. So it is definitely something where you want to reach out to somebody, an advisor, somebody who can help you with planning the estate because there's so many different considerations that go into all kinds of estate planning both during your lifetime and even post-op planning.

So there's a lot of different planning techniques that you can utilize while you are alive. So one thing you can do is if you have family loans, you can forgive those that essentially could be considered a gift. It could be considered taxable income. It's going to depend on how the loan is structured. There was a recent case, I believe it was Bowles last year that dealt with INTRAFAMILY loans. So INTRAFAMILY loans are something where you're going to want a lot to be very, very careful and make sure that it's structured as a bonafide loan. Again, something you absolutely are going to want to discuss with an advisor before you start doing family loans or forgiving family loans. Even if you have existing trusts, you can top those up. You can fund some of those trusts with the annual exclusion amount. That's one option. If you have the right provisions in the trusts, it will qualify for the annual exclusion amount, but you need to make sure that trust is structured in a way that it will actually count for that annual exclusion amount.

Otherwise it would be considered potentially a taxable gift. Life insurance trust, I feel like there's a period of time everyone had an irrevocable life insurance trust or an islet. They are still a common and good planning technique. So the way that this works is you form an irrevocable trust that the trust both holds and purchases the life insurance that ensures the grantors, the person who set up the trust's life. You have to be really, really careful on how you set these up because the purpose of them is that upon death, large insurance proceeds that would otherwise be included in the grantor's estate and therefore be taxable will instead not be considered part of the grantor's estate. But if you do something incorrectly, if somehow the grantor is considered to have owned that life insurance policy in any way, then it will be included in their state.

So you want to make sure that this is structured correctly. Otherwise having set this up will have done nothing for you. I have seen this happen. I have seen trust have this set up incorrectly and have a taxable estate because of it dynasty trust. These are as the name kind of implies, these are trust that can last really kind of in perpetuity. They can last for several generations and they are typically used to apply both the federal gift tax or state tax exemption and the GST exemption to assets so that for generations to come, the distributions made from the trust will not be subject to either gift tax or GST tax. There's a lot of different planning opportunities there as well. Unlike federal tax, which is, sorry, the federal gift tax exemption is applied essentially automatically is the default. You must apply it GST you can actually elect to apply. So you can have some, there's some planning opportunities there in terms of having how much something is going to be taxed from one of these GST or dynasty trusts.

I kind of really already went over that, sorry. So a spousal lifetime access trust. These are, I have noticed really growing in popularity. I feel like they are a really hot topic at every CPE. Every journal I read there's something about a slat, and this is basically a planning technique where either one spouse or typically both spouses set up trusts for benefit of each other and their children and or their grandchildren. And the grantor spouse is the primary beneficiary of the trust so they can receive and they're usually entitled to the distributions of income or principal of the trust during their lifetime.

So the donor spouse still retains some control through indirect provisions within the code. This is another instance where you want to make sure that it's done correctly because there is this doctrine called the reciprocal trust doctrine where if the trusts are set up essentially truly mirroring each other, the IRS will argue that there has actually not been a transfer of assets, no gift has been made, and they will essentially disallow this from being completed in the way that you want it to do. So one of the things you can do is one could have a third party trustee while the trustee is espoused on another one. There's a lot of different ways that you can draft it. There's no particular provision other than some of the big provisions that would make it more or less considered by the IRS to be a bonafide trust set up. So again, you absolutely want to talk to an advisor when you are considering doing this to make sure that it is set up appropriately. So one issue that you may run into, and this is not an uncommon issue to run into, is one spouse may have more wealth than another spouse. So in those cases, both spouses might not have enough assets to set up the trust for each other in a reciprocal way or non-reciprocal way, I should say.

In those situations, the wealthier spouse can give property to the other to kind of even it out, but you need to have a certain amount of time between that gift to the less wealthy spouse and when the slat is set up. Otherwise it would be the stip transaction doctrine would apply. The IRS really caught onto some of these techniques and will absolutely look into whether or not they think that this is a bonafide transaction or if this is just a tax avoidance technique. And then one final point, since they are typically set up as grantor trusts, the spouse who set up the trust and not the trust itself will typically pay the trust income tax, which is essentially a tax free gift. There have not been regulations yet that says that you can't set it up in this way despite I think years of people thinking that there might be something coming out. All right, then we have polling question three. When is the gift and estate tax exemption permanently increased to $15 million indexed to inflation? Is it this year, 2025? Is it 2026? Is it 2027 or is it never going to be increased to 15 million? We'll never see it that high.

I think we need to give it a few seconds

Sarah Adkisson:And I do see a question here. Can you give an example where a grantor made an error to cause a life insurance trust to be included in his or her state? I'll give the real life example that I had. I encountered, I previously worked at the comptroller of Maryland in the estate tax division, partly in the estate tax division, and we had somebody who when they had set up the policy, the owner was still the grantor. So even though the trust was holding the policy and was paying the policy premiums, the actual on the, was it the seven 12 when it was sent out, the owner was the grantor, which meant that it was included in his estate.

That seemed pretty egregious, but like I said, I have seen it happen. I think we are probably safe too. Yep. All right, so most people looks like got that correct. So kind of the key takeaway is, and it's really the same takeaway that has kind of always been, is plan now rather than later, figure out how you want to use your lifetime exclusion and your GST exemption. Consider swapping your assets with grantor trusts. One potential thing you can do is substitute low basis assets for higher basis assets or push lower basis assets to get that step up. If it would be more beneficial, consider the loss of the basis step up before you gift an asset and charitable bequests are no longer able to stretch. You're no longer to do a stretch IRA, so you may want to leave it to a charity instead. In terms of your beneficiaries, and again, all these are things where you want to make sure that you're talking to advisor and making sure that everything that you're doing is both in the best interest for you and in the best interest for your beneficiaries. We talk about tax a lot, but it shouldn't be the end all be all. We just should be really high up the list.

And then I believe we already discussed interest rates a little interest rates do play an important role in terms of trust planning. Low interest rates are good for granter retained annuity trusts or congrats sales to intentionally defective grantor trusts, which has my very favorite acronym of IIT and INTRAFAMILY loans. So all of those are good strategies when somebody has used up their lifetime gift tax exemption. Low interest rates are not good for qualified principal residents, trusts or berts. So some of these are also would also apply to say any of the different types of charitable trusts like a charitable remainder annuity or charitable lead annuity trust. But so we kind of already discussed the rates, I believe November, 2025, the rates are 3.69%, 3.83%, and 4.62% for short-term midterm and long-term respectively, and 4.6% for the 75 20 rate, which also has one of my favorite terms in tax, which is sometimes referred to as the hurdle rate. So you can see that the interest rates are not too terribly off from where they were in 2024.

Historically they are still low if you look at the grand scheme of things, but in terms of the past 20 years, they're higher than we have seen. So that's just one other thing that you want to take into account when you are doing your planning and again, something that a good advisor will help you out with. I think we have our next poll question very quickly after that, what is the annual gift tax exclusion amount in 2020? I'm sorry, the annual exclusion amount in 2026. Is it 20,000? Is it 18,000? Did it stay at 19,000 or is it somehow gone down to 17,000?

Sarah Adkisson:Doesn't look whole questions. One thing I will kind of say during this little time, we did kind of go through it pretty quickly, but honestly, the annual exclusion amount, it can be a very, very under looked planning technique for some people. So it's definitely something that you want to remember is there before you maybe start using up your exemption amount. Finding ways to use the annual exclusion amount is a good planning technique. I All right, so it looks like most people got it corrected is 19,000. All right, now I'm going to turn it over to Jessica.

Jessica Wolff:Thank you very, very much. Sarah, welcome everybody. Thank you for joining us today. I'm going to be taking us to the end with some philanthropic planning opportunities and discussing some of the impacts that the one big beautiful bill has had on charities and charitable giving. So after the passage of the TCJA in 2017, charitable planning became really, really important and in some cases one was one of the only tax planning tools available to many individuals. There are all sorts of planning techniques and charitable vehicles that you can use to achieve different goals. Just to let you know, charitable deductions are more valuable in the year with a higher marginal income tax rate. In some cases it might be very valuable to do a two year income tax production to optimize your benefit with your charitable deductions. I know in some cases I've done up to five years for certain clients who have been planning different charitable endeavors. Back in 2017, the TCJA disallowed and limited many other itemized deductions, which was our reason for leaving the charitable deduction as a very significant planning tool, but it also increased standard deduction. So it made it much more difficult to give enough charity to get the deduction for a good chunk of the US population. The one big beautiful bill act, which was signed into law in 2025, introduced pretty much four major changes to the tax laws that affect charitable giving for individuals. Please note that these changes do go into effect for the 2026 tax year.

So under the one big beautiful bill act, and again, these will come into play for 2026. 2025 will remain unchanged as in the past couple of years and we'll go over that a little bit. But for 2026, these are some of the new provisions that will go into effect. If you take the standard deduction, any taxpayer who claims the standard deduction is now eligible to claim a charitable deduction of up to a thousand dollars if you are a single filer or $2,000 if you're a joint filer. So if you don't itemize, you'll be able to take a deduction, which I think is a real benefit for a lot of individuals who do not itemize. For individuals who do itemize, the one big beautiful Bill Act made permanent the individual deduction limit for charitable contributions, cash contributions made to public charities. It's important to note that the Tax Cuts and Jobs Act that was passed in 2017 included a provision that included the cash contribution limit for individuals made to public charities to 60%.

This was up from the original limitation that was 50%. The one big beautiful Bill Act made the 60% permanent. Therefore, you can give up to 60% of your A GI in cash contributions to a public charity. Individuals making charitable contributions are only going to be deduct donations that exceed 0.5% of their A GI. Therefore, the IRS essentially now instituted a floor. Our Congress has instituted a floor on charitable contributions starting in 2026. Additionally, for certain taxpayers who are subject to the 37% bracket, the one big beautiful bill is also capping itemized deductions which could impact and limit the charitable deductions that you give. The law limits the benefit of the total itemized deductions for taxpayers subject to the 37% bracket. And we will talk a little bit more about that in our upcoming slides.

So depending on what you give and to where essentially determines how much you're allowed to take as a charitable deduction on your income tax return. And keep in mind that this is for taxpayers who itemize. If you take the standard deduction for 2025, there is no charitable contribution deduction and for 2025 you're limited to the either 1000 or $2,000 depending on if you are a single filer or a filer who's filing jointly. So anything as we mentioned before, that's given to a public charity that is cash. The A GI limitation for that is 60%. If it were ordinary income property, which is anything that is property that if sold at fair market value would generate ordinary income or a short-term capital gain rather than a long-term capital gain, then that is limited. 50% of your A GI if you were to donate publicly, publicly traded appreciated securities then that a GI limitation gets capped at 30% for your non-operating or your grant making private foundations, which is essentially a nonprofit organization that provides funding to other charities, institutions, or individuals for charitable purposes, your cash limitation for a GI purposes remains at 30%. This was not changed under the one big beautiful Bill Act, nor was the 20% if you were to donate appreciated capital gains property. Similar for private operating foundations, your limited to 50% for ordinary income property, 60% for cash, 30% for appreciated capital gain property. Your private foundations are those organizations that actively conduct their own charitable programs as opposed to simply giving grants away to organizations.

So as previously mentioned, the one big beautiful Bill Act affected a 0.5% floor on individual charitable contributions. Again, this is starting in 2026. This does not come into play for 2025. So it might be in taxpayer's best interest if they're considering large donations or bunching, which we'll talk about in the next few slides to make charitable contributions in 2025 versus 2026. So we have just an example here. Let's say in 2026 we have Grace makes a cash donation to a public charity for $1 million. Grace's EGI is 3 million. Her charitable deduction is then going to be limited to $985,000. So that's taking her $3 million times that 0.5% floor to get $15,000. So she automatically loses out on that $15,000 floor. She contributed a million dollars, lets the 15,000. She's only eligible to deduct up to $985,000. Since Greece made a cash contribution to a public charity, she can deduct up to her 60% of her A GI subject to the 5% floor. So essentially donations equal to 0.5% of that income are permanently disallowed. As we mentioned, they cannot be carried forward. Grace cannot carry forward her $15,000 floor. For contrast, if Grace made this 1 million charitable deduction in 2025 and her a GI was $3 million, her charitable deduction would be $1 million. She would be able to take that $15,000. That's otherwise limited in 2026 because there's no floor in effect for 2025.

So in prior tax years and through 2025, excess amounts contributed over what is deductible in a year can be carried forward to the subsequent five years subject, of course, two limitations for that year. So if we go back to Grace, and if Grace makes a cash donation to a public charity for $2 million and her I is $3 million, her charitable deduction is $1.8 million. Since Grace made that contribution to a public charity, she can deduct up to 60% of her a GI. Since she made a $2 million donation and her limitation due to the 60% A GI limitation is 1.8 million. Her excess $200,000 is carried forward for up to five years. Fast forward to 2026. If Grace makes the cash donation for $2 million in 2026 and her a GI again is 3 million, her charitable deduction is 1,785,000. Again, 60% of the A GI is 1.8 million less her $15,000 floor, which is the 3 million times the 0.5% floor. So in this 2026 example, grace can carry forward an excess of $215,000 for the next year. So disallowed donations due to the can be carried forward when the individuals make contributions above the overall percentage limitations. Keep in mind that disallowed donations due to the floor when contributions are not above overall percentage limitations cannot be carried forward. So whether you take a charitable contribution in a subsequent year depends on your circumstances for that year. Also, carry forwards can be lost in subsequent years if you use the standard deduction instead of itemizing.

I mentioned the term bunching before. Bunching. Charitable donations is a tax strategy where charitable contributions are consolidated. A taxpayer will consolidate multiple years of contributions into a single year instead of donating them over a period of multiple years. This became really popular when the TCGA was passed in 2017 limiting individuals and their itemized deduction. Other itemized deduction limitations. So we often suggest that clients bunch charitable deductions and give to a donor advised fund or private foundation in a particular year to make use of itemized deductions and obtain tax benefits. Again, this is a very popular planning technique. It hasn't gone away simply because of the passage of the one big beautiful bill act. Once in a donor advised fund or a private foundation, funds can be distributed to public charities over a few years subject to provisions in the code. The A GI limitation for a donor advised fund, otherwise known as DAF, is 60% for cash contributions, 30% for contributions of appreciated capital gain property. You can also bunch charitable contribution and donate significantly more to public charities in one year as opposed to others. It doesn't have to be a donation simply to a donor advised fund or a private foundation.

There's another example down here of bunching with our friend Grace. As I mentioned before, it might be more advantageous for taxpayers who itemize to make charitable contributions in 2025. There is no 0.5% floor and it also might be advantageous in 2026 and beyond to consider making contributions in a year when your adjusted gross income is lower because your floor will be lower as well, that 0.5% floor. Another very good philanthropic planning tool is using long-term appreciated property to fund charitable contributions. You can often, there's a double benefit to this. The individual saves on taxes, capital gain taxes, while potentially increasing the size of your donation. So there are significant benefits for both the donor and the donee using this technique. Let's go back to Grace. She has stock that she's owned for five years, has a fair market value of a hundred thousand dollars and she originally purchased the stock at $60,000, which is our cost basis.

Grace decides to donate the a hundred thousand dollars of stock to a public charity in 2025. So keep in mind, we are in 2025, no floor comes into play here. It's more beneficial to donate the stock to a charity rather than Grace selling the stock first and then donating the proceeds. So let's assume that Grace is in the 35% marginal bracket. So there's a small table below. It shows us the difference between donating the cash proceeds if Grace were to sell the stock first or if Grace donated the stock outright. So since Grace is in the marginal bracket of 35%, she essentially is saving 35, getting a tax benefit of $35,000, a hundred thousand dollars at 35% that she's able to deduct through itemized deductions on her 2025 return. In contrast, if she sold the stock first, paid the capital gains tax on it and then donated the proceeds, she really would only be getting a net federal tax savings of $25,480 once the capital gains tax was taken into consideration.

Here's our same example, but 2026, the floor comes into play. Keep in mind that the charitable entity that's receiving this stock is still getting the full hundred thousand dollars. However, there is a grace would take a little bit of a hit here on her tax savings just because the floor is coming into play. So in our 2025 example, if she donated the stock, she would be getting a $35,000 tax benefit here because of the floor it reduces down to about 33,950, and if she were to sell the stock first and then donate the proceeds, she would only really be getting a net federal tax of 24,430. And here we come to our first polling question in this section under the one big beautiful Bill Act. Taxpayers who claim the standard deduction can also claim a charitable deduction of up to a thousand dollars for single filers and 2000 for joint filers to or false. I'll give everyone about 60 seconds to answer the poll. All right, we have about 10 to 15 more seconds if you haven't answered that poll. Please go ahead

Jessica Wolff:All right. True. Under the one big beautiful bill Act tax payer who claim the standard deduction can also claim a charitable deduction for up to a thousand dollars if filing as a single filer or 2000 if they are joint filers. So we've already established that for 2026 there's a new provision under the one big beautiful Bill Act that has instituted a floor on charitable deductions. They also capped the benefit of itemized deductions to 35% for taxpayers subject to the 37% bracket. So in essence, even though this is an overall itemized deductions, ceiling charitable deductions are also going to be capped under this ceiling. Essentially, taxpayers in the 37% bracket have to reduce their itemized deductions by the lesser of their total itemized deductions or their amount of income taxed at 37% increased by any itemized deductions in 2025. Grace's EGI was a million dollars and she gave a hundred thousand dollars in cash contributions.

At a 37% tax bracket, she would be a 37% tax benefit, but if it were 2026, she's only going to get a benefit of $33,250, which essentially is our A GI floor of a million dollars times our 0.5%. So automatically $5,000 she loses. The benefit of her allowable charitable deduction is therefore 95,000. And then furthermore, her overall itemized deduction is calculated at the 35% rate itemized deduction ceiling is applied after the other limitations and itemized deductions. So your 0.5% floor is applied first. Then your charitable deductions are further restricted by the itemized deductions ceiling under the IRC section 68. If it applies.

A few things to consider when you are planning your philanthropic endeavors, anything that's being transferred, particularly non-cash contributions, but even cash contributions, you want to make sure that you satisfy this legal transfer prior to year end. Otherwise, technically it will not be considered a charitable deduction for the current tax year. You don't want to donate securities where the fair market value is lower than the cost tax. The deduction essentially would be limited to the fair market value and the benefit of the capital loss is lost. There is no deduction for your unrealized loss. Also, if you have a stock that you would like to donate and you are in a loss position, it's better to sell the stock first and recognize the loss, get the benefit for it, then donate the proceeds if the stock is held for 12 months or less or short term, the deductions limited to the lesser of the fair market value or the basis. And finally, if property is donated and it's inventory, it could be subject to some depreciation recapture, and then that deduction is limited to the lesser of the fair market value or the basis of your property. It's always a good idea to speak with your tax professional or other advisors before making any sort of significant non-cash donation just to make sure you have all your ducks in a row with making sure the transfer is completed smoothly and that the charity has received the donation.

So for donation of non-cash charitable contributions, they can include artwork, real estate, vehicles, other assets, you name it. They don't include cash checks or other monetary gifts, which the majority of our examples have covered. Then donors can usually deduct the fair market value of your non-cash charitable contributions. Of course, these are subject to limitations and requirements by the IRS. However, if you have non-cash charitable contributions and they exceed $500, there is a requirement to file form 82 83 with your federal income tax return. Just to be aware, publicly traded securities aside qualified appraisals are required to claim a deduction for non-cash charitable contributions that are over $5,000.

For anyone that has donated more than $5,000 in non-cash charitable contributions, you really want to make sure that you have a qualified appraisals. Qualified appraisers can be very hard to find. They get extremely, extremely busy at year end. So not only do you need to file the form 82 83, but appraisals along with assigned to 82 83 by the appraiser are required to be included with the donor's federal tax return. The IRS scrutinizes these forms and often disallows these deductions for simple mistakes in the forms or for parts that might not be appropriately filled out. So you really want to get a head start in getting everything you need and making sure that you're working with your tax advisor. Some other things just to consider, you want to make sure that the charity actually wants your non-cash property because if they're not going to hold onto the property, if they're just going to sell it within three years, your tax deduction could be reduced because the charity actually has to report if it sells your non-cash contribution within three years.

And if it's not part of its exempt purpose, so many charities do have gift acceptance policies. A lot of times these are available online, sometimes they're not. So you will want to inquire as to whether or not a charity has a gift acceptance policy before you randomly just donate something to them. But you also want to make sure that the charity plans to use the property as part of his exempt purpose. I I'm not going to go through these next couple of slides in detail. These are examples of the most current ED 2 83 form that's available. At the top is predominantly where you record your donated property. That's $5,000 or less. Just to note, you also report any donated public securities that you've don donated during the year. In this section, there are other parts to the form that are relevant if you donate other non-cash items. So now we have popped up with our second polling question. What should you do when planning to donate non-cash property to a charity? Do you A wait until your end to find an appraiser? B, make sure the charity wants and will use the property for its exempt purpose. C, skip including form 82 83 with your return and D, assume the charity will keep the property without asking. I'm going to give everyone about 60 seconds to answer this polling question.

We have another about 15 seconds, so if you haven't answered the question, please do so.

All right. B is the correct answer. When you want to donate non-cash property to a charity, you really do want to make sure that the charity wants and will use the property for its exempt purpose. Just some other options, I'm not going to go into too much detail with these. There are some trust vehicles that will provide income to a beneficiary yet also serve out a lot of individual taxpayers charitable visions. One option is called a charitable remainder trust. There are two types of charitable remainder trust. There's annuity trusts and unit trusts and essentially the point of a charitable remainder trust is that it pays income to donors and beneficiaries for a set term with the remaining assets going to a charity later with an annuity trust, it pays a fixed percentage on an initial trust value, which results from a fixed dollar annuity and the unit trust pays a fixed percentage on the trust's annual fair market value at the year, at the end of the year, this is an irrevocable trust. The term cannot exceed 20 years. An annuity payout must be at least 5%, cannot exceed 50% of either the initial amount transferred to the trust or the annual year end value for a crut when the trust is set up, just note that there are gift tax consequences if the annuity is peed to a beneficiary instead of a grant tour. Some advantages to a charitable remainder trust you can diversify your portfolio, defer capital gains, you will create an annuity stream.

The charitable deduction is received in the year that it's established and the present value of the remainder interest goes to charity. Assets can grow tax deferred since income tax is only peed on the annuity payments. In contrast, a charitable lead trust is kind of the opposite as of a charitable remainder trust. So where the charitable remainder trust pays income to either the donor or beneficiaries for a set term and the remaining assets go to charity leader, a charitable lead trust pays income to the charity first with the remaining assets going to a beneficiary after the end of the term. So with a charitable lead trust, like I said, the annuities paid to the charity, the non charitable beneficiaries receive the remainder interest. There has to be a charitable intent when setting this up. It can be set up as either a grantor or a non-grant or trust.

Keep in mind, if the non-grant or trust, there's no charitable deduction allowed and the trust is taxed on that income in the event that it is set up as a grantor trust, the grantor takes the charitable deduction at the time the trust is established. And establishing this trust is really beneficial when the, it's called the IRS 75 20 rate is relatively low resulting in a higher charitable deduction. So right now the rates are really high, so you might not get as much of a benefit as you would've a couple years ago, but it's still something to think about and take into consideration if you are planning significant charitable donations to a charity.

We mentioned donor advised funds earlier. These are very, very popular with all sorts of individual taxpayers. They're easy to administer. The public charity A GI thresholds also apply to donor advised funds even though the assets aren't technically yours anymore. Once you contribute the funds to a donor advised fund, most donor advised funds take the recommendations from you for your charitable preferences. Just so you know, there's been quite a bit of iris scrutiny on donor advised fund and potential future legislation might come out. There are some things that have been sitting in Congress for years and years and years. No one really knows if these are going to be acted on or what's going to happen in that regard. Guard again, these qualify for the 60% a GI limitation in cash and a donor advised fund and private foundations are not qualifying charities for purposes of an RMD. Just a little FYI.

You do have a nice spreadsheet here that tells you the difference between donors advise funds and private foundations. I will leave that for your perusal and just a few things before we wrap up here. Year under the one big Beautiful Bill act, similarly to nothing has changed in regard to charitable contributions, substantiation requirements, organizations are not required to provide donors with written acknowledgement If your cash contributions are under $250. However, it's recommended that you keep substantiation for the donation, whether it be a canceled check, a bank statement, credit card, pay stub or whatnot. If your donation does exceed $250, an organization is required to provide you with a written acknowledgement. It includes the amount donated whether any goods or services were received as a result of the contribution and a description of and good faith estimate of the value of goods and services, if any were received. And these definitely should be kept with your tax records and provided to your tax advisor.

Again, as we briefly spoke about non-cash contributions under $5,000, donors should keep any written acknowledgement including a description and value of the property donated the date, the name of the organization that it was given to, and if it's impractical to get a written acknowledgement of a non-cash contribution, think about the clothes that you leave in the goodwill bin. Reliable written records should be kept, so you want to keep the little receipt that they might give you or even if they don't give you one, you want to write down to whom the items were donated to your date and location where they were given. And then you want a detailed description of the property, including the fair market value of the property that was donated at the time of the contribution. And you also would like to document how you arrived at your fair market value. Again, non-cash contributions that exceed $5,000 other than publicly traded securities qualified vehicles and other certain inventory items require a qualified written appraisal. So we are running out of time, but we may have a minute or two to touch upon a couple questions.

Patricia Kiziuk:Thanks Jessica. I did try to respond to some of the questions, but there was a couple that were common. I think when we talk about things, we say things are permanent or temporary and when something is in this bill and is marked as permanent, that just means that there's no end date. So when they just kind of note what the change rule is, there's no marked end date. Other things like the no tax on tips that specifically says that it's through December 31st, 2028. So then we refer to that as temporary. So that's the distinction. So permanent doesn't mean that because the president put forth this rule today, a new administration cannot change it. It just means that for now the rule is set to remain the same until it gets changed in the future. So that was one item that there was quite a bit of questions about.

I guess that just to kind of summarize, when you go through, there's a lot of data here and you'll see that we use the terms adjusted gross income, modified adjusted gross income phase out and all these different things apply and a lot of the rules, they're all different. So that is where it's really important to just not assume that something stayed the same or that you kind of understand how it's going to apply. Take the time to do your research and understand the different limitations that would apply. One item that I didn't talk a little bit about was the extra standard deduction for seniors. So currently there is, last year I think it was 1500 if you are over 6 65 and there's also an additional standard deduction if you're blind, those still are in play and I believe it's 1600 for 2025 because they're set to go up slightly each year.

But they did add an additional standard deduction for seniors who are over 65 and are collecting social security. And this gets into, when you hear on the news, they say, oh no tax on social Security, it's not necessarily correct. It is just that an additional standard deduction is allowed of 6,000 per person to, if you are collecting social security to reduce your overall taxes, that additional 6,000 is also subject to a phase out. So for married couples, once your income is over $150,000, a portion of that can phase out. So there's just so much intricacies with the rules and everything that to go over every single concept would take quite a bit of time. So that's why we have the slides to present that to you. Those I think were the kind of the things that I saw a lot of. And then as we were getting into Jessica's discussion, there's a lot of questions on charitable, and the charitable stuff is very complex. Again, work with your tax provider, understand what you want to do to make sure that you fully understand the applicability to your particular situation. Okay. With that, I guess Astrid, I guess Jessica, I'm not sure if you want to add anything before we close things out.

Jessica Wolff:There is just one question that just popped up regarding non-cash donations. Regarding the $5,000 limit applying to the class of the property contributed not to the total amount contributed? That's correct. It's actually a $5,000 limit per class of property contributed, not the total amount we don't see. Once in a while we do get lucky and someone who has donated over $5,000 of non-cash contributions who otherwise might have deeded an appraisal, their different classes of property. So if someone donated say $2,000 of clothing to Goodwill and then a tractor for say $3,500 to another charity, they would both, each would get the $5,000 limit. It wouldn't be a complete $5,000 limit. So hopefully that answers question one 20, but other than that, we will, I believe we will be receiving a listing of all of these questions and we can look into them and respond to them over the next few days. Am I correct with that, Astrid?

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