Year-End Tax Strategies | Planning for Individuals & Families

So that's why planning is done with multi-year projections rather than one year at a time. And we can't just assume that a deductible payment creates a current year tax benefit.

Okay, so this next slide is about getting organized, organizing your tax information and financial documents, complete inventory of financial assets and investments. If you have anything new for the current year that your preparer should know, make note of this, check your pay stubs, establish an IRS online account, and you could do the same for states if applicable. Review your income sources and expect the timing of receipts, review your expenditures incurred and pending for possible deductions or credits. And before 12 / 31, we'll want to consider gifting, maximizing retirement contributions, tax loss harvesting, HSA contributions, and zeroing out flexible spending or dependent spending accounts.

Cash flow management, this is important, calculating your current estimated tax liabilities, making them timely based on actual income and deductions. In order to avoid underpayment penalties, you will not owe the penalty for the underpayment of estimated taxes if the amount of taxes you pay is the lesser of 90% of the actual tax shown on your current tax year or 110% of the tax on your prior year's return based on the safe harbor exception or 90% of your actual tax for the current year based on the annualized income installment method. The 7% rate for individual underpayments and overpayments holds for the fourth quarter of 2026 and compounded daily making safe harbors worth meeting. The annualized method helps clients whose income was concentrated late in the year, whether it be a fourth quarter sale or a bonus or something of that nature. That's where that planning would come into place.

So this year is a chart that shows various situations and whether to defer or accelerate income. So your regular tax rate will be the same or lower next year and AMT will not apply. This would be a situation where you would defer income. Your regular tax rate will be higher next year and AMT will not apply. In either year, you would accelerate. The regular tax rate applies this year and is higher than the AMT rate that you expect next year. You could look into a deferral. This year you are an AMT and next year you'll be subject to a higher tax rate. That situation would require accelerating income as a planning idea. An important one, if you have incentive stock options that you can exercise, consider exercising your options to start the long-term holding period, but only if the spread between the market price and exercise price will not put you into AMT.

So this is another one where AMT comes into play. You have net realized capital losses this year or loss carry forwards from last year. Consider recognizing capital gains to offset the losses. And if you have net realized capital gains this year, you can sell securities with unrealized losses. You'll need to consider the implications of the Medicare contribution tax, and you'll also want to look out for wash sale rules, which we'll cover more on the next slide.

Okay, so wash sale rules. So this is put into place to prohibit selling an investment for a loss and replacing it with the same or substantially identical investment 30 days before or after the sale. So the window is 61 days in total. It's 30 days before, it's the sale date and it's 30 days after. And this rule was developed to prevent investors from creating a deductible loss without any market risk. So this can occur when partial sales occur and more of the security is bought with a dividend reinstatement. And in this scenario, it may make sense to turn off your automatic dividend reinstatement on positions being harvested. So this is something you'll want to look into. You'll be careful of this at year end, especially when loss harvesting occurs.

Okay. Next we have a poll question. Poll number two, the wash sale rule disallows a loss if you buy a substantially identical investment within how many days before or after the sale? A, 10 days, B, 30 days, C, 60 days or D, 90 days. And you'll have 60 seconds to answer this polling question. I'm going to continue on to the next slide while you guys are answering that poll and then we'll discuss the results in the slide after. So this is the mirror image of the income slide, except it's taking deductions in the year they save the most. So your regular tax rate will be the same or lower next year and AMT will not apply in either year. We should look into prepaying deductions. If your regular tax rate will be higher next year and AMT will not apply in either year, we can look into deferring deductions.

The regular tax rate applies this year and is higher than the AMT rate that you expect next year. Consider bunching charitable contribution. Consider the new limitations and timing, which Eli will get into more detail in the later slides. Same goes for this year you are an AMT and next year you will be subject to a higher regular tax rate. Consider bunching. And again, Eli will get into this in more detail.

Okay, so the wash sale rule disallows a loss if you buy substantial identical investment within how many days? The answer is 60 days. I'm sorry, 30 days. My apologies. Okay. Individual tax changes under the OBBB. So the top rate remains 37%. The mortgage interest limitation is permanent. It's limited to 750,000. So taxpayers with adequate cash flow may consider paying down their current mortgages and home buyers may want to take out a mortgage with the principal balance at or below the threshold and cover the remaining purchase price through other funding sources. Continuing on here, personal exemptions are permanently terminated. Although they are disallowed, taxpayers with qualifying dependents, there are other tax related benefits to consider such as the credit for child and dependent care expenses and the dependent care benefits exclusion. AMT exemptions, the OBBB permanently extends the higher AMT exemption amounts under the TCGA.

So although the higher exemption amounts remain the same, the exemption amounts will be reduced faster due to the faster phase outs under the new law, and this will ultimately result for taxpayers in the AMT. Okay. Standard deduction increased a bit from 15,750 to 16.1 for single filers, 31.5 to 32.2 for joint. Taxpayers 65 and older are given an additional 6,000 senior deduction. This is phased out above 75,000 and it's temporary through 2028. A bunch itemized deductions versus claiming the standard deduction based on income. Miscellaneous itemized deductions are permanently disallowed except for the unreimbursed educator expenses.

Itemized deductions under the OBBB. So there's a new itemized deduction limitation and the OBBB replaces the Ps limitation with the new overall itemized deduction limitation effective one / one / 26, which is applied after the application of any specific itemized limitations, including the 0.5% floor. So itemized deductions are reduced by two 37ths of the lesser of the itemized deduction amount or excess of taxable income over the 37% tax bracket threshold. This does not impact section 199A QBI. So as in a simple example, a taxpayer has a million dollars in taxable income and $100,000 in itemized deductions. After the 237th reduction of 5405, the allowable itemized deductions are 94,595 and the rough tax impact on that is about 2000 of additional federal income tax. So simply put, for top bracket taxpayers, each dollar of itemized deductions now saves 35 cents instead of 37.

The SALT, so state and local taxes paid. For 2026, the SALT deduction was raised to 40,400. This phase out is 505 for joint, 2525 for single, and the deduction is reduced by 30% of excess modified AGI, but not below 10,000. In 2030, the SALT deduction will revert back to $10,000. So we want to maximize the SALT deduction, accelerate property tax payments in December, make estimated state tax payments before year end, bundle multiple years of personal property taxes for high earners, defer income near phase out thresholds when possible, consider Roth conversions during lower years and time your capital gains strategically. And as far as preparing for the 2030 reversions since SALT limit returns to 10K, you can plan your major purchases or moves with tax implications in mind, consider state tax planning for post 2029, and evaluate relocating to lower tax states. And for those business owners that can make entity level PTT payments, that is not subject to the individual cap and reduces AGI.

They'll touch on this more in our second session for businesses this afternoon, but I did want to make note of that.

Okay. Charitable deductions under the OBBB. So there is a new floor. The 60% of AGI limitation was made permanent, but it also implemented a new 0.5% floor. Disallowed charitable deductions are carried forward subject to special rules. So for non-itemizers, the OBBB permanently reinstates above the line charitable deductions up to 2,000 for joint filers, 1,000 for single or for other. This is for cash. This is not for items such as clothes, household items, or volunteer time. Those do not qualify. And you'll want to make sure you adjust your donations to slightly exceed or meet the caps and max out that benefit. For itemizers, just be aware of the reduction, understand the impact, consider timing and bunching contributions. For charitable deductions, it's important to retain documentation. The IRS requires you to have a letter from the organization for any donations over $250.

Okay, so here we have the tax benefits with income limitations under the OBBB. So this is a chart that shows some of the credits and deductions that have income limitations. Child tax credit increased by 200, phase out at 400K for joint and 200K for single. SALT we spoke about earlier. Auto loan interest deduction, this is an above the line deduction up to $10,000. It's for loans originated from 2025 to 2028. It's for new vehicles under 14,000 pounds and final US assembly. Used vehicles do not apply and a phase out at 200K joint, 100K single. The tips and overtime deduction phase out at 300K for joint, 150 for single, and these are above the line deductions. Because these phase outs key off modified AGI above the line moves such as retirement contributions, HSA, those help more than itemized deductions for taxpayers near the various thresholds.

Okay. Poll number three, do you review your tax and financial information throughout the year? Yes or no? You'll have 60 seconds to answer this and since there's no right answer, I'm going to continue on with the slide deck. Okay. So form 1099 - K, reporting of third-party network transactions. So 1099 - K is a report for payments received during the year from a payment app or online marketplace. So think Venmo, PayPal, Stripe. The OBBB restored the $20,000 in gross payments in 200 transactions on a single platform for 2025 and later. So this should not include a report gifts or reimbursement of personal expenses from friends and family.

This is just what the form will look like in case you do see it come your way. This is just a sample. Form 1099, NEC and 1099 MISC. I'm not going to get into this too much, but this is a practical point for individuals with businesses wholly owned or rental activity. Make sure to collect W-9 through vendors to assist with preparation at year end. And the OBBB threshold was raised to $2,000 for these as well. Okay. Trump accounts. So these are somewhat of a hot topic. Beginning July 4th, 2026, contributions may be made to these accounts. The account is a type of traditional IRA for a child who is under 18 at year end and has a social security number. Contributions are not deductible. Earnings grow tax deferred. After the growth period, distributions are then taxed like traditional IRA withdrawals, including the 10% penalty before age 59 and a half, and distributions are permitted until the beneficiary reaches 18.

So family contributions do create basis, employer contributions, the $1,000 government deposit, and charitable contributions do not create basis. Employer contributions are capped at 2,500 per employee, not per child, and that counts towards the $5,000 annual limit.

Okay. Qualified opportunity funds under the OBBB. So the OBBB preserves the original QOF program. Qualified opportunity funds are corporations or partnerships that hold at least 90% of their assets in an IRS designated qualified opportunity zone with the goal of rebuilding low income communities. So gains are deferred through QOFs made prior to January one, 2027, are taxable the earlier of the sale date or December 31st, 2026. So the new program, the OBB establishes a new program for QOFs made after December 31st as follows. So taxpayers who reinvest capital gains into QOFs with the prescribed period may defer recognition of the gain the earlier of the QOF sale date or five years from the investment date. For QOFs held for five years, taxpayers may permanently exclude 10%. The QOF basis is stepped up to fair market value if held for 10 years. The date to determine fair market value depends is based on sold before or after 30 years and resulting in potential tax after anniversary.

Clients still invested in QOF and plan with tax harvesting charitable donations, et cetera, to reduce the OBBB and minimize cash flow issues for the gain they must recognize on December 31st, 2026. So clients should consult with their investment advisors to seek profitable QOFs to benefit from the new program. And again, if investors were in the original program, there is a deferred gain that will be recognized December 31st, 2026, even without selling. So plan cash for the tax and consider harvesting losses to offset.

Planning with retirement plans. So we don't have time to touch on all of these, but qualified charitable distribution, we will speak about a little bit. RMDs, self-employment income, this opens the door to a solo 401k or a SEP, low or no cost Roth conversion. These come into play if a decline in income or if maybe you're semi-retired and not yet collecting social security, a stretch Roth IRA, a backdoor IRA and Roth IRA for children and grandchildren. And another account that acts as essentially a supplemental retirement account is the HSA. So if eligible for HSA, you can look into maxing that out as well.

Qualified charitable distributions. So what is a QCD? So a distribution from an IRA owned or inherited by someone aged 70 and a half and over and paid directly to a qualified charity. The maximum allowed is 111,000 for 2026. Any benefit received from the charity in return for the contribution will disqualify the QCD. Each spouse can contribute up to 111,000 from his owned or inherited IRA each year, even if that exceeds your RMD. And the potential benefits of making a QCD is the QCD is excluded from income and also satisfies your RMD requirement. Will QCDs qualify for a charitable contribution deduction? No. Because it's excluded from income, no further deduction is allowed. Eli is going to show some examples on this in later slides, but this is just the broad set for now.

Required minimum distributions. So the RMD is required in the year the taxpayer turns 73. For planning, think about the qualified charity distribution and the penalty for an RMD that has been missed or not fully taken has been reduced to 25% and possibly 10%. If the RMD is corrected within two years, that waiver request can be included with form 5329 to request no penalty. And just a reminder, Roth IRAs do not have RMDs unless inherited. Backdoor Roth contribution. So if your income is too high to contribute directly to a Roth IRA, there's still a workaround and it's called the backdoor Roth. You make a non-deductible contribution to a traditional IRA, so up to 7,500 for 2026 or 8,600 if you're 50 or older, and your spouse can do the same even if they don't work. Shortly afterward, you convert that money to a Roth IRA typically with no added tax costs, and over time that can build real value.

If your employer's 401k plan allows it, the mega backdoor Roth goes even further with total employer and employee contributions of up to 72,000 and higher limits if you're 50 and older. So key caution here is the pro rata rule. All traditional SEP and simple IRAs are treated as one when figuring the taxable part of a conversion. So with that said, a taxpayer with pre-tax IRA money will owe tax on part of the conversion.

Some notable changes to tax credits. We touched on the child tax credit and dependent care credit. The foreign tax credit is relevant for clients with foreign mutual funds or international holdings. Residential energy credits and clean vehicle credits are both expired. Notable changes. Again, this is the first full year of the One Big Beautiful Bill Act, high inflation adjustments, social security wage base is 184,500, retirement plan contributions 7,500. Let's see. So in summary, getting organized is important. Review your tax information throughout the year and before year end, review your income deductions and possible credits, focus on SALT and charitable contributions, review stock options to determine whether now is the time to exercise tax loss harvesting, consider capital gain distributions, which are typically paid in December, max out tax deferred accounts, consider PTET where applicable, and of course review the EisnerAmper Personal Tax Guide. Chapter one is out now and the full guide will come early 2027.

Okay. So next up, we have Derek Dockendorf to further discuss estate and gift tax consideration.

Derek Dockendorf:Great. Thank you, Michelle. Well, good morning and good afternoon everyone. Derek Dockendorf, PCS tax partner here out of our Minneapolis office, but I'm also part of our national trust and estate group. So going to spend a few minutes talking about the current gift and estate tax landscape, walk through sort of what do we have today, planning considerations I think for all of us to think about, as well as some additional techniques that we may want to assess whether or not they should be part of our overall holistic estate plan and the benefits that come along with those. So let's dive right in here. So as Michelle mentioned, last summer we had the big piece of tax legislation, the one big beautiful bill. What that did on the estate and gift tax side of things is it gave us a sense of permanency, right? I do use that in quotes a little bit because we know with tax legislation, anything's permanent until something else comes along and decides to change it, but we know right now that there's no sunsets that we got to worry about.

We have some clarity and actually can do some forward thinking planning with our clients to make sure that they're taking advantage of everything. So real quick on just the income tax pieces for fiduciary and estate income tax returns, right? It kept the brackets the same, top rate of 37%. One thing that I do want to note about what's different from an income tax perspective for a trust and estate compared to an individual, right? An individual married couple, the top tax bracket when the 37% starts to kick in, you're talking taxable income of north of 650, $700,000. So you get a pretty big span that's there where you can take in a lot of income and not be at that top rate. Trusts and States are the exact opposite. They have very compressed tax brackets. It only takes about $16,000 of taxable income for a trust or an estate, and they're already at that top rate.

They're paying 37% ordinary rates on all their income, 20% capital gain. We've got the 3.8% net investment income tax that's going to be there. So with estates and trusts, we want to be mindful of the overall intent that's there because they're very inefficient from an income tax perspective, but there's a lot of non-tax reasons why our clients have them in place and they should continue to be monitored and utilized as part of their holistic estate plan. So the big piece that we got is clarity and permanency with the current estate and gift tax exemption. Prior to the one big beautiful bill, the estate tax exemption was set to sunset at the end of 2025.

Legislation last summer reinstated that. So as of one / one / 2026, at the federal level, everyone on this call has a $15 million personal exemption that they can utilize. That exemption can be utilized either during their lifetime or it's available to them at their passing. So you've got that $15 million bucket that you can utilize. Married couple, take that times two. You've got 30 million of protection. The exemption is set to be indexed for inflation. We've yet to see the final numbers for 2027. So we know it's 15 million per person as of one / one / 2026. We're expecting it to increase here in 2027, and that information should be on the next couple weeks from the IRS. If we had it today, we would've shared it with the group, but expect to see a little bit of an uptick for 2027, and that process continues moving forward.

In addition to the estate and gift tax side of things, we also need to be mindful of what they call the GST or the generation skipping transfer tax exemption. Exact same dollar amounts, but think about these two exemptions kind of in parallel columns running side by side. We want to be mindful of how we utilize this exemption if we're trying to do planning for what they call a skip generation. So the easiest example to think about is grandkids. If you're doing planning and you want to have trusts that are set up to potentially benefit grandkids in the future, you're going to make outright gifts to your grandkids right now, you're going to want to think about how do I utilize that GST exemption? As you're doing gifting, there's often points where our gift and estate tax exemption is going to be different than what we have available from the GST side of things.

So good news is the amounts are the exact same. They're going to be indexed the exact same, but as you're thinking about planning, putting strategies in place, be mindful of how you want to leverage both of those. And that's why we're also here to help out on that side.

Okay. So polling question number four here, what is the new permanent lifetime estate and gift tax exemption per person beginning in 2026? A, seven million per person, B, 12 million per person, C, 15 million or D, 19 million per person. So give that another second here before we move on to the slide so it stays there that you all can answer it. There we go. Okay. Okay. I like this chart because I think it provides a really nice visual to help give us a sense of what's gone on in the estate planning space for the last 25 years. It's a little busy, but the main things that you want to focus on, we've got our index that's in the top left-hand corner. So the top blue line is the federal estate tax rate. The red line is the income tax rate, and the green line is the available exemption that we had per person.

You can kind of see a little bit in the middle there in the gray, you can see the pieces that came into place where the exemption jumped, the tax brackets dropped and everything. If we rewind to the early 2000s, a couple things that you can see, super low estate tax exemption per person. You're talking 600,000 right away, a million per person early on in the 2000s, super high federal estate tax rate. It was topping out at 55%. So we had a massive gap in potential estate tax exposure that was going to be there. And there was a significant gap between the top individual income tax rate and the top estate tax rate. So the planning was defer, defer, defer, get it out of my estate, get it out of here. I don't want to try to pay that estate tax because it's going to be really onerous as time goes on.

Continue to move down the chart to the right where we are today, and even going back to the Tax Cuts and Jobs Act in 2017, you can see how we have so much more available exemption today. Not only that, but really look at how the blue lines and the red lines started to come together more and more. The delta between our top estate tax rate and our top income tax rate is much smaller. The top federal estate tax rate is 40%. And as Michelle covered in her section, the top individual income tax rate is 37%. We got a 3% delta that's going to be there. However, look at that green line continue to go up and up and up. It went from about five million per person to 10 million with the Tax Cuts and Jobs Act, and it's continued to gone up from there.

And then the one big, beautiful bill put in that $15 million of permanent exemption right now as of today. So really how the conversation has shifted in a lot of conversations with clients that I've had and even internally, it's like we're still focused on the estate planning side of things, but it's really focused to the income tax piece. What are the income tax planning considerations that are falling in as part of our estate plan? I'll talk about that as I go, but I though this was a nice chart to kind of set the scene to help with these next conversations like where do we go next? What are some things that our clients should be thinking about and considering along the way? Going back to our polling question, 85% of you had it right. The new exemption as of one / one / 2026 is 15 million per person that we have available to us.

So a lot of flexibility, a lot of room to do some really impactful planning for our clients.

Adding to not only what do we have going on at the federal side of things, some of you likely reside in a state, myself included, being in Minnesota, that has its own state estate tax or inheritance tax that we need to be mindful of. Great chart right here, high level summary. And you can kind of see here on the right hand column where it's got the chart with all the states that are there. Even with the states that have their own state estate tax, it's not consistent across the board as far as when you might tip over having a federally taxable estate in that jurisdiction. So not only as we're thinking about planning, looking at things holistically, certainly want to be mindful of the federal estate tax and the considerations on that side, but there's the state wrinkle that we can't avoid as well. In Minnesota, we've got three million of protection per person with a top state estate tax rate of 16%.

So that's always in the back of my mind as I'm talking about clients that are in Minnesota. So if you reside in one of these states that might have this exposure as well, make sure you're factoring that in as part of your planning and running the math on that because you may trigger a little bit of state estate tax, but that still might be the better outcome at the end of the day. And we'll talk about that here as we go as well.

So before we can really move forward with really intentional planning to make sure that we're going to align with all your goals and objectives, we need to put on the table what are the goals and objectives with the estate plan because really estate planning broken down to the simplest level is kind of a three-legged stool, right? Your assets are going to go to one of three locations, family or heirs that you're identifying in your planning, charity. And to the extent that we don't exhaust options one and two, everything else is going to go to taxes. So as part of that planning and the consideration process, it's really important for us to get on the table and really understand what are the goals and objectives because those goals and objectives are going to drive which legs of the stool we're really focusing on. And you may say, "I need to make sure that all these assets get to these families or these individuals or this business interest has to go to this kid." And even if it might generate estate tax to some threshold, whether it's federal or state, if the goal is to get that asset to that individual, we're going to want to make sure that the plan is going to be able to support that, being mindful of what that tax component's going to be.

So we've got to start first, get those goals on the table, make sure we're walking through all these pieces, and then as we continue to dive into the plan, we can see how that's going to impact the three legs of the stool as we go.

So what we're going to look at now, the next two sections that we're looking at are just some overall planning considerations and going to be approaching it from the standpoint of think of a married couple. So thinking of a combined net worth of a married couple of 30 million. So we're going to be looking at planning considerations for clients that have a combined gross estate of less than 30 million right away. And then we got a few techniques after this one that talks about if you've got a gross estate greater than 30 million or two federal exemptions, things to be mindful of as well.

So first and foremost, we want to make sure that our core estate plan is locked down. Some things that are going to be there that we want to make sure that we have addressed, we're being mindful of making sure that we're keeping them updated is a will. Oftentimes a revocable trust is going to make a lot of sense. A revocable trust, the main piece that a revocable trust or a couple of main things that revocable trust helps and brings to the table is it avoids probate potentially at the state level because assets inside the trust aren't subject to that probate process. And two, you have the ability to control and change up what you want to have happen with that revocable trust. So it's important to set that foundation, have that revocable trust layout everything that you're looking for, but being mindful that you can go back, change it, make sure it's being adjusted as life continues to go on, life events happen because we want to make sure that that's going to ebb and flow with us as time goes on.

Healthcare proxy or medical directive, that's really important because as you get to the points, if you're incapacitated, you can help share with your loved ones what kind of medical care are you looking for? What sort of efforts do they need to go to? So having those conversations, making sure you've got that healthcare proxy or medical power, medical directive on file with the hospital and so forth or with the individual that has that power, really important to make sure that you can have and you're setting the direction for the care that you want to have in those particular situations. Also a power of attorney. This could also look like a financial power of attorney. So again, if I'm at a state that I'm incapacitated, I could give my wife the power to transact on my behalf in certain situations. Again, you can set parameters around those pieces.

These are core items that are there. To make sure that these documents flow how you want them to, we also need to make sure that our beneficiary designations, think of your IRAs, your retirement accounts, your life insurance policies, we need to make sure that the beneficiary designations are aligned with our overall goals and objectives and are singing the same song as our core estate planning documents because those beneficiary designations are what they call an operation of law. So if I had in my plan, I wanted all my retirement assets to go to my wife, but on my beneficiary designation, I had it going to my dad, it doesn't matter what I had in my revocable trust, those retirement assets would go to my dad. So you need to make sure that those two pieces are going to be aligned because we want to make sure that they're marching in lockstep together.

I think about estate planning from this perspective, it's an ongoing living, breathing process. You're going to spend a lot of time upfront building the foundation, going through the goals and objectives, but this is something that you should be coming back to every two to five years. Make sure, is it still aligned as your kids are getting older? Do you have the right breakouts if there's trusts that are going to be established for them? When can they get access to the assets? Are grandkids now in the picture? Has there been a divorce? There's a lot of things that will bring you kind of back to the table because you're going to want to make sure that this stays up to date and in sync with your life as you have it today. Maintaining flexibility and control that I found in conversations is key. Oftentimes married couples, if their gross estate's less than 30 million, they really don't have the ability to give up five, 10, 15 million of assets down to their kids.

There's cash flow needs, there's control, there's access, there's things that they want to make sure that they're going to be able to have the lifestyle that they want to have in retirement, but still have the overall estate plan meet the goals and objectives that they've got. So again, putting it all out, getting the goals and objectives on the table and making sure as we're looking at strategies that are going to give you the most flexibility and control that you can act if there's going to be a piece of legislation that might change the tax landscape today, but you've also got the control and you can do what you need to with those assets to make sure that you're not giving away everything and having nothing left to live on at the end of the day. And for a lot of clients in this space, I do think the focus has really shifted to the income tax planning because assets that are part of your estate, outside of retirement assets are going to get a step up in basis to fair market value at the time of your death.

If you bought Apple stock at 10 bucks a share and it's not worth a thousand dollars a share, you bought that rural piece of land for a thousand dollars an acre, it's now 15,000 an acre, if those assets are includable in your gross estate when you pass away, the basis in those from an income tax perspective gets stepped up. So the beneficiaries or the heirs of your estate could turn around the next day, sell that particular asset and recognize no income tax on the sale because of that basis step up. So that's why as we talk about really putting and getting the goals down, but also putting a little pen to paper around what is my potential estate tax exposure, but then also what's my income tax potential savings that might be there by including assets in my gross estate. Conversations that I've had with clients, the initial gut reaction might be gifted, get it out of the estate or get it out of mom's estate because we don't want to pay even state estate tax on that.

And that's sort of been the mentality as you can see from that chart of the last 25 years. But as you take a step back, think about it, do a little math, there could be a strategy or a rationale that you want to say, "Hey, no, actually I need to retain this asset because the income tax savings from the basis step up is going to far exceed any potential estate tax that I might owe." So make sure that we're running both calculations that we're looking at the core estate plan as we go here.

Also, don't underestimate the power of annual gifting. So in addition to the $15 million exemption that we all have right now, we also have an annual exclusion from a gift tax perspective of $19,000 per person. So theoretically, I could give everyone on this webinar $19,000. And as long as I stay at that number and under, I'm not going to use a dollar of my lifetime exemption or a dollar of that 15 million that I have available. So you can see the powerful nature of what that looks like. As soon as I give somebody a dollar over 19,000, I start to eat into that $15 million exemption that I have right now. So married couple, as you can kind of see here with the example, if they've got three kids, six grandkids, that married couple could move transfer tax free without using any of their gift exemption and any of their estate exemption.

I know it's one and the same, but they can move $342,000 out to those individuals, get the cash into their hands, let them utilize the assets during their lifetime and still have their $15 million bucket available to them. So be mindful of this. This is also indexed for inflation. It generally only goes up in a thousand dollar increments. So we need to be mindful of that as we get those adjustments each year. We'll also see how much does the annual gift exclusion also go up at the same time. For clients with less than 30 million, we've often found that outright gifts tend to make a lot of sense if there's marketable securities, if there's land, if there's a business interest, those are easy assets to give to the intended recipients. The thing to be mindful of is any gift that you make that isn't cash, the recipient of that gift is going to step into your shoes from the income tax basis side.

So just like we talked about causing inclusion to get that step up, if I had rural land at a thousand dollars an acre and I wanted to give it to my daughter right now and set 10,000 an acre, she doesn't get it at that... Her basis is not the current fair market value, she gets my basis. So that inherent gain that's still attributed to that asset gets transferred to the recipient of the gift. So you also want to be mindful of what does that look like for the recipient. There could be reasons that you do that. There might be capital loss carryovers, other things that Michelle mentioned that they may have at their own individual level that you could transfer some of those pieces, but outright gifts still make a lot of sense at this point in time. But don't discount the use of trust.

If you're at this point, there's probably a lot more non-tax reasons why a trust would still want to be part of your core estate plan than some of the income tax reasons or estate tax reasons why. The big thing that's there is you're looking for creditor or predator protection. If you have it in an irrevocable trust for the benefit of kids, grandkids, there's a layer, there's a bubble that's around that trust. You can try to keep as many of the assets within the family bloodline as much as possible. It's not subject to claims by other individuals. It's a really powerful way to still keep it protected. It may not be the most tax efficient spot to drop some of those things, but again, oftentimes as we're having those conversations with clients, the non-tax reasons greatly outweigh the tax reasons of why trust would still be put in place at this point in time.

Another piece, a concept that's been around really I think since about 2010 is, and it's a federal piece and we'll kind of talk about the state side of it in just a second here, but it's a concept called portability. At a high level, basically what that means, my wife and I, like we said, 15 million each, 30 million of total protection. If I die and only use five million of my lifetime exemption, I've got 10 million that's still available. I can make an election where I'm letting the IRS know, I'm going to say, "Hey, I want to grab my unused exemption and I want to give it to my surviving spouse." So that keeps the surviving spouse whole from the total exemption that's available to them as a married couple. So I utilize five, 10 excess. I give my 10 to my wife. She's now got 25 million of protection that's available to her.

So it's a way to make sure that you're not having to potentially fund things. It provides a lot of flexibility of planning for married couples. Two things that are really important is, and again, this is where we come into play and we can be really helpful in guiding our clients through these situations. But if I died with example, say in only a $5 million estate and I want to give the excess to my wife, I've got a little extra time to go ahead and make that election. I have up to five years from the date of my death to go ahead and make that election, give that unused exemption to my wife, and she stays protected across her core estate plan and everything else. If I die with an exemption greater than the current threshold, so if I die with $20 million and the current exemption's 15, even if I'm only using five and I'm giving everything else to my wife, there's a clock that we're now on to make a proper timely election to go ahead and capture that unused exemption.

And that follows the estate tax timeline. So it's either nine months from day to death that I've got to make that election, or if you make an extension of additional six months, I've got 15 months to make that election. So be mindful of when you're looking at your total gross estate and you're having these conversations, where does your gross estate fall? Because that is going to help dictate the timing, the action you may need to take if you're looking to make a portability election.

That federal election, the portability concept only applies to your lifetime estate and gift exemption. I can't give my unused exemption to my wife. So if I don't use all of that at the time of my death, I can't give her the excess. So again, that leads to another level of planning. What are we looking at? Are there trusts that we're funding? Again, there's a lot of things we're kind of throwing at you this on the estate and gift side. We're here to help. We're here to diagnose, help you understand what the options are and work through what's going to make the most sense for you at that point in time and your loved ones. The states, right? The states don't follow traditionally right now this same concept. There's legislation, I think, in a handful of states where they're looking to potentially adopt this idea, but Minnesota right now, where it's three million per person, if I don't use all my three million when I die, I can't give my access to my wife.

So we would lose that potential opportunity. So you can kind of see how the estate tax components play into the federal portability concepts and ideas and strategies that we have around that. So again, make sure we're getting it all on the table, discuss the goals and objectives, make sure we're looking at the right things with that overall core plan and maximizing and preserving what we have available to us.

Okay. Couple things real quick here in my last couple minutes of some, I'd say more common planning techniques that are going to be there with, again, married couples is using that as the framework when they have a gross estate greater than 30 million. So we're going to look at three main concepts here in the last little bit. The first one is what they call a spousal lifetime access trust or a slat. So basically what this is, is I create a trust for the benefit of my wife and our kids and grandkids. And the way that the trust is designed, it's a completed gift. So I'm moving assets out of my estate, but with my wife as a beneficiary, the assets of the trust are also outside of her estate as well. So we're using that exemption. The assets are staying in trust. She's still a beneficiary of that.

So the assets still kind of stay in our ecosystem that's going to be there. Something that clients like about the slat is even though I'm making the gift, I'm retaining indirect access to the assets through my wife. If we wanted to go on a family trip or she wanted to buy a cabin up north and she wanted to use the assets of the slat to go ahead and do that, she's a beneficiary and she's allowed to do that. I might just also be along for the trip. I also might enjoy the cabin. So I'm indirectly benefiting from some of these assets even though I've gotten it out of my estate. So it's a grantor trust for income tax purposes, which means all the income of this trust still falls on the grantor, i.e. Me in this example, my personal income tax return. But since it's a completed gift, I'm getting these assets out of my estate, the assets of the slat do not receive a basis upon my death.

So there's also some planning considerations that are there that we need to be mindful of at that same time. Great opportunity to use GST because again, it can be multi-generation, but you want to make sure as you're looking at this, the two things where all of a sudden where this strategy starts to go a little bit sideways is death or divorce of the spouse who's the beneficiary. If my wife predeceases me, I lose that indirect access. If we were to get divorced, I also lose that indirect access. So making sure that you're thinking through this concept holistically to see if it actually plays into your core estate plan at the end of the day. Strong technique, see it a lot, but we really need to make sure that we're looking at the assets to control the cash flow, all the pieces that come into it to see if this is something that we need to pull the strings on a little bit.

So the second one is a grantor annuity trust or a grant.

We know how it operates. Think about this as kind of like an estate freezing technique where you're getting little bits of appreciation outside of your estate. This is something that I generally try to go to or put on the table for clients if they've used most of their lifetime estate and gift exemption. They don't have a lot of exemption that's left because the way that these grants can be structured today with the way that the laws are drafted, they can be structured in a way that I'm not making any gift to the trust. And what I'm hoping to do is put in an asset that's going to appreciate higher than a certain rate threshold. It's called the 75 20 rate. Think of it like an interest rate. If I have appreciation above that interest rate, all that appreciation goes outside of my estate, gift and estate tax free to the beneficiaries of that grant.

Where it's an estate freezing technique is I'm putting in assets, but I'm also taking an income stream back out. So it can be a way that if you need cash flow from the assets that you are putting into the GRAT, there's an annuity that comes back to you as the one who creates it, that can continue to give you cash flow during your lifetime and everything. Again, grantor trust, I pay all the income tax on it. A couple things that we need to be mindful of, I need to survive the GRAT term to keep the assets out of my estate. If I set up a five year GRAT and I die in year three, all the assets come back in my estate. It's a bit of a strategy where it's like heads, eye, win, tails I'm still in a good spot because at the end of the day, if a GRAT fails, you're really only out the compliance costs that it took to set that thing up to try to get more and more appreciation outside of that estate.

It's not a great tool if you're looking to do GST planning because we can only do GST at a certain point in time and that's at the end of the grant term. So if the asset's really appreciated, you may potentially utilize more GST exemption than you want to. So tried and true, I really go to this if I get a lot of clients that are close to using all their lifetime exemption. Again, it's an easy way to just slowly chip away and get more and more outside, but it's there. Clients like it works great with concentrated positions to try to move some of that appreciation out of the estate.

Last kind of core concept here is what they call, it's a sale to an intentionally defective grantor trust or an IGIT. Again, this is a bit more of a estate freezing technique where I'm only making a gift of about 10% of the asset value that I'm looking to get out of my estate. So that's my gift component. And then I'm selling the other 90% to the trust. And since it's a grantor trust, again, all three of these concepts are grantor trust, but with the sale to an IGIT, it's a grantor trust to me. I'm entering into a transaction between myself as the individual and myself as the grantor of that trust. So that sale is ignored for income tax purposes. So I don't have to pick up the gain on that sale. I'm not picking up the payments as they're making it. So it's a way to, again, it's an estate freezing technique.

So I'm trying to move an asset out, but I'm taking a note back. And I'm hoping what's going to happen is the asset's going to continue to appreciate at a greater threshold than the note that I've taken back. So I'm getting, again, more and more icing off the top of that cake out of my estate, gift and estate tax free.

Really powerful if we can leverage discounted assets. If you've got a business interest that we can get discounts too, which I'll talk about in a second, great way to leverage that because that can really amplify the strategy to move more and more appreciation out of your estate. Also an opportunity to set up that trust where it would be you could allocate some of your GST exemption to that to keep it protected for multiple generations moving forward. So great asset, you don't need to worry about surviving the age of term for instant inclusion. If I get the assets out and I die before the note's paid off, the only thing that's included while back in my gross estate is the value of the note at the end of the day. So again, all three of those that we just walked through, if it's something that you're thinking about looking at, you really want to sit down.

Again, you're going to hear it a lot as I'm kind of a broken record on this, but pen to paper, really look at what's going on to make sure that we can factor that into the overall core estate plan at the end of the day and what are the income tax and estate tax considerations related to that. Couple last pieces before I wrap up here. Again, I already mentioned it, discounted asset planning. If you've got a business interest, there could be an opportunity if it makes sense within that business to restructure some of the ownership that you have voting and non-voting, because there might be ways that you can get with a valuation of that business discounts for lack of marketability and lack of control. And again, that's a way to sort of drive the value down from a gift or estate perspective to leverage some of these techniques.

A lot of things that I'm seeing with clients that we've had conversations around revamping, looking at their core estate plan is looking at cash flow and liquidity issues. So not only is it getting a sense of where are we at today, what's our potential exposure from an estate tax perspective, whether federal or state, we also want to look at what's the liquidity source that we have inside of that estate. If it's heavy business interests and it's a lot of illiquid assets, we can have a cash flow crunch. There's ways that we can go around trying to help solve that issue, but the sooner that we get that issue on the table and identify what the gap is that we need to close, the more proactive we can be in actually finding the appropriate result that might have the most impact. You can see here where a life insurance trust or an ILIT could make a lot of sense because again, source of cash flow, you pay the premiums, the ILT structured in a way that it's outside of your gross estate.

So it's a source of cash flow that comes in whether for covering estate tax or it can also be a tool to utilize equalization across beneficiaries of the estate and so forth. Lastly, if you have a heavy real estate portfolio, think of commercial real estate and everything else, and the asset of that is includable in your gross estate and you get that basic step up. A cost seg could be a really great opportunity to provide post-death tax savings. That might be income tax savings for the ongoing business that holds that LLC can be a great way to leverage that step up, get a cost seg, accelerate some depreciation deductions for that entity and provide future income tax savings moving forward.

Final thoughts and takeaways before I turn Over to Eli. Again, you can see from that chart that we had at the beginning, the gap is really closed between the federal estate and income tax rates at that top threshold, as well as how the exemption has really climbed over time. So we've got a lot of flexibility, more maneuverability than we might have had previously and so forth. Again, this is an ongoing process. I try to tell clients it's a living, breathing thing. We should be looking at this every two to five years. If you haven't looked at your estate plan in the last five, 10 plus years, great time to come back and take a look at it. Where are we today? Your kids are likely at a different phase in their life. You're likely at a different phase of your life. So we want to make sure that that estate plan can stay up to date with us and it's going to continue to mirror what our overall goals and objectives are going to be.

And with that in mind, flexibility is key, really being mindful of where you want to retain control over access to the assets, cash flow. These are all important things that we want to put on the table as we're having these discussions to keep as many options as we possibly can in front of us and be able to pull on that option when it makes the most sense. And then lastly, you've heard me said a couple times, we got to put pen to paper. Again, our initial gut over the last two decades plus of planning, it was always gift, get it out of the estate. But where we're at now, the income tax savings in a lot of situations may far exceed the potential estate tax exposure that might be there. So make sure that you're running that because again, the answer might surprise you and it might go against what your initial gut's telling you.

So really important to take the time, analyze that and make sure you're in the proper spot in a good place. So with that, appreciate you all for joining us today and taking the time. And Eli, I'm going to turn it over to you.

Eli Mudrick:Yeah, thanks Derek. Hi everyone on the call today. My name is Eli Mudrick and I'm a tax director within private client services. I'm based out of EisnerAmper's Philadelphia office and I specialize in IRS compliance for nonprofits and also providing philanthropic advice to our clients. So I'm very excited to round out this webinar today with a topic that I find incredibly fun, which is how do we give our money away? How do we do it in a way that maximizes the tax benefits using the rules written into the tax code? And what alternative strategies might exist to satisfy those philanthropic desires that we have as we look to support the causes that we love the most? And I say support the causes we love the most because while charitable planning is a tool that we can use for tax planning, it is also, and I think first and foremost really should be about providing support to the nonprofit organizations that we care about and the causes that desperately need that funding.

So as we move forward here, as we think about all the tax planning tools out there that Michelle and Derek both just discussed over the past hour or so, we've discussed ways we can reduce our tax burden and philanthropic planning is a huge part of this. Because of rules around charitable gifts like AGI floors and ceilings and limitations and changes to the standard deduction, they complicate this. So tax planning, it becomes a really big multi-year exercise to make it as efficient as we can. So to the extent that you can anticipate changes to your income from year to year, planning for two years looking forward can be a really helpful tool. And we'll see that a little bit as we move forward through the presentation here. So the One Big Beautiful Bill Act, Michelle already touched on this, but I just want to drive it home.

The One Big Beautiful Bill Act made four primary changes to charitable giving beginning in 2026. First, for taxpayers who claim the standard deduction, there is now an above the line charitable deduction of $1,000 for single filers or $2,000 for joint filers that can be claimed for cash gifts that are given to charity throughout the year. It is important to note here that contributions to donor advised funds and supporting organizations do not qualify for this because the goal is really for the money that you give to charity to be directly and immediately for the benefit of the public. Next, another change, the individual deduction limit for cash gifts to charity has been permanently capped at 60%, which was previously a temporary cap. Next, taxpayers who itemize their deductions will only be able to deduct deductions that exceed 0.5% of their AGI. This is a pretty big change and we'll see some examples later about how this can affect things.

And then lastly, if a taxpayer is in the top 37% tax bracket, their gifts and all major itemized deductions are only deductible at the 35% tax rate. So let's dive into these changes in a little bit more detail.

So first let's talk about the AGI limitations on charitable giving. This may look familiar to many of you. If you are a taxpayer who itemizes deductions instead of taking the standard deduction, this table goes into detail on the different limitations involved. So just to detail some of them for cash donations to a public charity or an operating foundation, you can deduct up to 60% of your AGI. Short-term assets deemed ordinary income property, that is capped at 50%. An appreciated long-term property is deductible up to 30% of AGI when you're giving it to a public charity or an operating foundation. If you're making contributions of assets to a private and non-operating foundation, so think your family foundation, a grant making foundation, you can deduct cash contributions up to 30% and appreciated assets up to 20%.

Okay, so now we have another AGI-based consideration as a result of the One Big Beautiful Bill Act, which is a 0.5% floor to the charitable deductions. So let's look at the examples to better understand this. So in this example, we have Grace. She's a taxpayer with an AGI of $3 million and she makes a cash donation of $1 million to a public charity. Since her AGI was $3 million, she has a 0.5% floor of $15,000, so that's 0.5% of three million. And so she can only deduct donations in excess of this. So what that means is that when she's itemizing her deductions, that $1 million donation becomes a $985,000 charitable deduction. Now in the second example here, let's say Grace changed her mind and she gave away $2 million instead. Now we're looking at two different AGI-based things. Her deduction is limited to 60% of AGI, so 60% of that two million gift is $1.8 million.

That excess, that $200,000 of excess there, that doesn't get lost. It does get carried forward to the next year. But again, it's important to note that the charitable deduction this year is still reduced by that AGI floor of 0.5%. So the actual charitable deduction we're looking at for Grace this year is now $1,785,000. So we'll go to the next slide. Keeping with this example here, Grace carried forward $200,000 from 2026 into 2027. So her AGI in 2027 again is a very comfortable $3 million, but she decides that she does not want to donate additional money to charity in 2027. So her total charitable deduction in 2027 is going to be that $200,000 carry forward, but again, it's going to be reduced by that AGI floor of 0.5%, which is again $15,000. And so the charitable deduction in 2027 is going to look like $185,000. So the AGI floor can be pretty impactful, especially as income levels increase here.

So we're going to have another polling question here. Beginning in 2026, itemizers can deduct charitable contributions that exceed what percentage of AGI? A, 0.5%, B, 1%, C, 2% or D, 5%? Pause here for a little bit so you can answer. Okay. So while you're answering that, and we'll look at the results in a second, thinking about Grace's giving activity in 2026, I would argue that she was attempting a strategy of giving called bunching. So bunching is where a donor can combine several years of their plan donations into one year, which is usually done due to circumstances that can make sense for them, such as knowing that in a future year your marginal tax rate could be higher or maybe you know that some legislation is coming that changes the deductibility of gifts in a future year. 2025 towards the end of the year, we knew that these changes were coming in 2026.

So that's an example there, but it can also help you reduce the impact of the AGI floor. So just using the Grace example, two years of charitable deductions were claimed, and in both of those years there was $15,000 of deduction lost to the AGI floor. So that totaled $30,000 over the two years. Had all those gifts been deductible in the first year, the amount lost to the AGI floor would've only been $15,000. So as we think of even higher levels of income, you can see what kind of impact this would have. So when we bunch, instead of spreading gifts across multiple years and seeing AGI floor, you can give it all in one year. There's a couple different strategies that you can use for this. One of the most popular strategies is a donor-advised fund. They're very popular right now. So you would give the money to a donor-advised fund in year one, and then you would pay grants that you would otherwise pay over a time period. You could still pay those over time from the DAF, but the initial contribution to the DAF would be made in year one.

Otherwise, you could also just give a large contribution in one year and then no contribution in the following year. Though I would say that if you do this, you should probably talk to the development folks of the charity you're giving to just to make sure that they know that maybe they shouldn't expect to receive another big gift the following year or they can spread out its use over multiple years.

So let's look at the results of that polling question. Great work. It looks like the majority of us pick 0.5% here, which is the correct answer for what the floor is of AGI. So we're actually going to jump rapid fire right into another polling question here. So the next polling question here, what is the percent of AGI limit that an individual is allowed to deduct for contributions of appreciated long-term capital gain property donated to a public charity? Is it 50%? Is it 60%? Is it 30%? Or is it 20%? Give you a second answer. Okay. So while you're answering that, let's talk about a somewhat simpler addition from the OBBBA that is that lower levels of charitable giving can have both benefits and pitfalls depending on how you look at them. So first, if we look at this example, you could receive no charitable deduction at all if you donate smaller amounts while itemizing.

In this first example, Jessica's AGI floor was $1,250, and that is more than the thousand dollars that she donated to charity. So she's not getting any charitable deduction this year. I just want to be clear that this isn't to say that you should avoid itemizing and nor should you avoid giving to charity, but if your itemized deductions are only a few hundred dollars over the standard deduction, it could actually make sense to then force the standard deduction to utilize this above the line charitable deduction instead. So in this example with Jessica, she would obviously want to itemize even though she doesn't get a charitable deduction since $45,000 is pretty good. But in the second example, we have Henry who is claiming the standard deduction and he gets the $1,000 above the line deduction as well. So he is getting a benefit to that gift. Just say hypothetically Henry instead had added up itemized deductions and they did exceed the standard deduction, but maybe only by $500.

If he were to force the standard deduction, he would get an extra thousand dollars of deduction there, so it'd actually be more beneficial to force that standard deduction.

Let's look at the results of that polling question. So the percent of AGI limit that an individual is allowed to deduct for contributions of long-term appreciated capital gain property donated to public charity, the majority of us got this correct. That answer is indeed 30%. Okay, stay with me everyone. We're reaching the home stretch. So moving ahead to another ceiling to be aware of in 2026 from the OBBBA when it comes to charitable deductions, for those of you in the 37% marginal tax bracket, meaning you're a joint filer with over $768,700 or a single filer with over $640,000 of AGI, your charitable gifts are only deductible at the 35% tax bracket level benefit, which is going to be calculated using the 237s rule here, which Michelle actually explained earlier, so I'm not going to detail it. But instead of detailing it, let's just really quickly look at this example in the table to compare what this looks like in 2026 compared to what it looked like last year.

So here we have a taxpayer in the top marginal bracket with AGI of a million dollars, and he gave $100,000 to charity. Last year, if we look at the 2025 column, that $100,000 was deductible against the 37% tax bracket and there was no AGI floor, so his tax benefit here was $37,000. In 2026, the income and the giving situation are the same, but the donations are now subject to that 0.5% floor of $5,000. So the deductibility of the gift is right off the bat limited to $95,000. And then the tax rate benefit of it is reduced to 35%. So the tax benefit of this same contribution a year later is now $33,250. So it's still a really great deduction, but the benefit is nearly $4,000 less than last year. It's worth noting that while I used only charitable giving here, this 35% cap is applied across all major itemized deductions too.

So just keep that in mind.

Okay, so we talked a lot of numbers. We talked through some examples. We've gotten the complicated rules out of the way. Let's just get a little bit simpler and discuss some timelines of when you should consider making a gift to ensure that it counts in 2026. So cash gifts are effective on the date of the transfer, so this one's pretty simple and the same goes for credit card-based donations. If you're mailing a check, you may want to be careful. Historically, gifts were considered complete in the year of the postmark on the envelope. And while this has been relaxed a little bit recently, the US Postal Service has also changed their processes and when they postmark a letter to later in the sorting process. So if you were to mail a gift on December 31st, it could very likely end up with the January 1st postmark.

So just try not to wait until the last minute if you're mailing gifts to charity. For securities and mutual funds, they're both donated effective the date of the transfer, but I would just point out that mutual funds especially can often take up to a week to fully transfer. So again, don't wait until the last minute with a mutual fund gift. Get those out soon. Finally, real property donations. So that's real estate, art, those sorts of things, tend to require a significant amount of work in deed and title transfers and appraisals. So you want to consider doing these earlier in the year to make Sure that it's done. Right now it's November, so I don't really recommend starting a donation of this type of property this late in the year. Okay. But since we do have plenty of time left in the year to donate stocks and mutual funds, let's take a look at the benefit of using those for your charitable giving instead of just giving cash. Donating long-term appreciated property like a stock you've held for a very long time to charity provides the donor with a fair market value-based deduction while also avoiding selling and realizing any capital gain. So the benefits of doing this can be pretty substantial. If we look at the 2026 side of this example slide, you can see that Grace again donated $100,000 worth of stock to a charity. In the first column here, had she sold the stock and donated the cash proceeds, she would not only have to pay capital gains tax, her AGI would increase, which increases the 0.5% floor.

So there's a lot of impact here. So donating the stock directly, if we look in the right column, provides a tax benefit of $33,950, whereas selling the stock and then donating the cash generated from the sale provides only a tax benefit of $24,360. So doing a direct stock donation saved her nearly $9,500. So we recommend if a charity that you support accepts stock donations, it's a really, really good way to plan that gift and make a good tax savings in the process. So this was an example of $100,000 gift, but imagine what the impact could look like if this was a larger gift or maybe there was zero basis on the stock, which a lot of founders of companies have.

So now that we've seen the benefit of giving appreciated property, let's dig into the mechanics of doing this a little bit more. So stocks and other marketable securities are an obvious choice for a non-cash donation, but it's not the only choice. I mean, how many of us have donated clothes into a yellow drop box at the back of our Planet Fitness parking lot? There are many kinds of assets that we can give to charity so long as a charity is willing to accept it. My local NPR affiliate accepts old cars. Yours probably does too. So when it comes to any appreciated asset, you generally get to deduct the fair market value of that asset, but just know that when a non-cash contribution exceeds $500 in value, you do have to complete an additional form called the 8283 with your income tax return to provide additional information about the donation.

As you consider this, don't fall prey to a couple of pitfalls. One, only give away appreciated long-term assets and do not give away capital loss assets. With a capital loss asset, you could actually sell that and get the benefit of realizing a loss to counter any other capital gains you might have and then donate the cash. But appreciated assets are really good to give away. Note too, that the deductibility of the donation of a short-term stock, so something held for less than a year, is limited to the lesser of fair market value or its basis. So focus on your long-term appreciated stocks when you're thinking about this.

Another important point here is that non-cash contributions worth over $5,000 other than publicly traded securities would need a qualified appraisal for you to be able to claim a deduction on that. So a qualified appraisal can take time to complete and you have to find an appraiser, but you really do need to have one to claim the deduction on non-cash property that is donated at this value. So if you want to donate non-cash, non-marketable property, start it earlier in the year to make sure that one, the charity wants it, two, you can get a qualified appraisal, and three, that the charity can use it to further their exempt purpose just to make sure that it is deductible to you.

Beyond that appraisal, to substantiate your non-cash donation, you should also receive a written acknowledgement from the charity, which includes a description of the property that was donated, the date and the location of the contribution. For non-cash property of lower value, so going back to say the clothes drop box, if it's not practical to get a written acknowledgement of that contribution of clothes, just keep your own reliable records. And I will say there are a few mobile apps out there that can help you do this. So just take a look if you're interested in that. And remember again that if your donation is over $5,000 of non-cash property other than stocks, you need a qualified written appraisal.

Substantiation for cash gifts is much simpler. The key thing to remember here is that you'll typically get a tax receipt from an organization that includes the amount you gave, and it'll also include the value you may have received in return for that gift. My membership, as an example, was deductible net of the value of the welcome sent me, which even though I requested a sent me a bucket hat, so you can imagine how good I look in that. My tax receipt told me that the value of the bucket hat was non-deductible to the extent, I think it was $10. Nonprofits are not required to provide you with a written acknowledgement if your contribution is under $250, but I will say most of them will do that.

So we have another polling question here that we'll pause at. Donating investment securities held at a loss is generally a tax efficient way to make a charitable donation, true or false? Okay. While you're all answering that, let's move forward into some other options for charitable giving. We're in the home stretch. First, I want to talk about income producing gifts. So this is a charitable planning tool that allows you to both give to a charity, but also earn a steady stream of income during your life. So first here we have charitable remainder trusts. This is an irrevocable trust that can provide an income stream most commonly in the form of a minimum 5% or so payout to individual beneficiaries. And then at the end of its term, which is either the end of the beneficiary's life or 20 years, depending on what you select when you set it up, the remaining corpus is then distributed to the charity.

I will say this is a somewhat complex giving vehicle. It requires drafting a trust document. It requires annual fiduciary tax compliance. If you're interested in an income producing gift, there are slightly less complicated options too, which we'll get into in just a moment. But before we do that, let's take a look at the results of our poll.

Very good. The majority of us answered false. Donating investment securities held at a loss is generally not a tax sufficient way to make a charitable donation. You want to focus on donating securities held at a gain. So in the next slide, we talk about the next example of an income producing gift. This is called a charitable gift annuity. The way that this works, you essentially make a contract with a nonprofit if they offer this as a donating option where you the donor give the charity a lump sum and it funds an annuity with the charity, and then that nonprofit will pay you a fixed amount for the rest of your life. These can be pretty flexible. They can be based on one life or two lives if you're married. If the rate's not very good when you're young, you can be a defined fixed date in the future for the annuity to begin paying out.

They can be funded through donations of cash or appreciated securities, and the payout rate is usually reasonably good. Based on the current tables at the American Council on Gift Annuities, a 75-year-old annuitant should receive a 7% rate of payment on a gift annuity with a charity.

Important to know as you then get paid an annuity, part of the gift would be immediately deductible to you. Part of each annuity payment going forward is then treated as a return of principle for a period of time, and then part of each payment is going to be taxed to you as ordinary income on a 1099 R. From the charity's perspective, to offset the impact of the payments that they're making to the annuitants, they'll typically invest these gifts in a reserve pool to try and maintain the principal value of that gift. Once the annuitant passes away, the contract ends and the remaining principle is retained by the charity, but it's another interesting way that you can give and earn a little bit of income from doing it.

Another example of a different option of giving is the IRA qualified charitable distribution. Michelle talked about the details earlier, so I'm not going to read these bullets, but I do just want to go through the example in the bottom right part of this slide. The benefit of this QCD, again, is that it never hits your income. So here we have a woman named Carol. She has an AGI of $1 million before taking her RMD, and her RMD is $100,000, and she wants to give $50,000 to her favorite Philadelphia-based animal rescue pause, the Philadelphia Animal Welfare Society. If she gives this as an outright gift, her taxable RMD is $100,000, which increases her AGI now to $1.1 million. So now the AGI floor for her is going to be $5,500. So right off the bat, that $50,000 gift is only deductible to the extent of $44,500.

And then in addition to that, she's in the 37% tax bracket, but it's capped at the 35% rate for this gift. So the deductibility is reduced or the tax benefit rather is reduced even further. So the outright gift that she has here ends up netting her a tax savings of $15,575. Now let's look at the same gift, but processed as a QCD from her IRA. First of all, her AGI is going to be a little bit lower because half of that RMD never hit her income. The QCD went directly to the charity bypassing income. There's no 0.5% floor associated with this gift. Again, it never hit income. It's not a deduction. So the tax savings of doing this also gets to be calculated at her 37% rate since it wasn't ever a part of income and wasn't a charitable deduction. So that results in $18,500 in tax savings.

So just by giving that gift from her IRA, Carol saved nearly $3,000. So QCDs can be a really, really powerful tool.

So we have two slides here on charitable lead trusts. These are not very popular right now because the IRS 7520 rate is high and these are more beneficial when the rate is low. So I'm going to skip past these slides for the sake of time because we're bumping up on the end of our time together today, but you can look at these and please feel free to ask questions in the Q&A. Really quickly, I just want to go through one last option for philanthropic planning, which is an incredibly popular one right now, and this is the donor advised fund. The donor advised fund is a vehicle, a philanthropic account essentially, where you can open up this account with a nonprofit that considers the donor advised fund program. Assets can be invested to grow over time, and the donor can then pay out grants to other charities when they're ready to deploy those funds for good.

So a few important things to keep in mind is that funding a DAF is an irrevocable gift to a charity. You no longer own this money. And while you can make investment recommendations and grant recommendations, they have to be done within the policies and procedures of the specific DAF sponsor that you choose. So you are giving up a little bit of control here. In addition to that, many DAF sponsors will have policies requiring a minimum amount to be distributed each year. Generally, it's lower than the 5% you see with private foundations, but you have to give out a minimum for many DAF sponsors to keep your DAF active. In addition to cash and marketable securities, DAFs can be a really flexible tool for donating other kinds of property. DAF sponsors are generally pretty willing to accept gifts of partnerships, hedge funds, art, and they'll take many different kinds of things.

You'll have to go through their due diligence processes before they'll accept them, but they can be pretty flexible with that. And I mean, honestly, at face value, a DAF sometimes feels as though it's functioning like a private foundation. So I think it'd be helpful to maybe compare some key differences between the two vehicles to wrap up our presentation today. So when we look through this table, I'm just going to highlight some of the differences. A private foundation takes time to set up. You have to draft a trust, you have to draft articles of incorporation, you have to apply for a tax exemption. A DAF can be set up in minutes online and it can be done without any significant startup cost. While administratively, you have less control with a DAF. So if control is something that you value, perhaps consider a private foundation. Contributions to DAF, as we just keep moving down this list, a contribution to a DAF is deducted at fair market value with the full 60 / 30 deduction ceilings since you are giving it to a public charity, whereas a private foundation would have a lower deduction cap.

And also there's some complications on contributing appreciated property to a private foundation.

Moving down, DAF sponsors often require a minimum distribution each year, but there's no legal requirement currently, like a private foundation's 5% average asset value requirement. For donors who value privacy, if you value privacy, a DAF can give a gift on your behalf without disclosure of where it actually came from, whereas a private foundation that's public record where you're giving. I did see a question in the Q&A box that someone asked if a DAF has to pay or file a tax return. It does not. A DAF is just an account with a public charity. The public charity handles all the administration and a DAF doesn't pay tax, whereas a private foundation does pay a 1.39% excise tax on net investment income. So when we look at the differences here, donors who value legacy building, a private foundation can really deepen family ties and it can become sort of a named pillar of your community as you sponsor the organizations and give grants to the organizations that you care about.

But ultimately both vehicles are really great ways to develop a philanthropic strategy. They just serve different functions, but for an immediate tax planning strategy within the last two months of the year, which is what we're looking at right here, a DAF can actually make a lot of sense.

The final slide of this philanthropic portion here is Just ways that you can think about giving in death. And so there's two main strategies that I think about here, which one is a charitable bequest, which is where you can write in a gift to a charity into your will, and that can be counted against the taxable estate as you go through the estate taxation process. And then the other one which can be really powerful is to actually change your IRA beneficiary designation to a charity instead of giving or leaving your IRA to a person. The reason this can be really helpful and really impactful is that individuals are going to pay taxes on the distributions that they receive from an inherited IRA. The charity doesn't pay tax, so they get to get the full benefit of that money. And it can also then free up basis step up eligible assets elsewhere within your estate for more tax transfer of wealth while also maximizing the value of that IRA.

So to wrap things up, Michelle walked us through some general tax planning information today. Derek talked with us about the things we should consider as we plan our estates, and we all learned a little bit about different opportunities to give money to charity. If there's one thing that the three of us take away from this is that you really want to continue to review your tax situation, your estate plan, and your charitable use regularly. And as circumstances continue to change, like we saw with the Beautiful Bill Act, don't be afraid to revisit those plans and make sure that they still make sense. So with that, I want to thank you all for attending and I'm going to hand it back to Astrid for a couple of announcements.

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