Tax Incentives Are Not a Sin | Part One

brian-13Published on Tuesday, May 23, 2017
Written By Brian Cochran, CFP
®, CKA® Financial Planner

Part 1 in a 3 Part Series

The dust has settled after another tax season. This time every year, I hear from frustrated clients who, upon reviewing their tax returns, ask, “How can I pay less taxes next year?” In the weeks ahead, I will provide insight across three themes that could help you lower your taxes for 2017 and beyond.

  1. Charitable Giving
  2. Tax-advantaged Savings
  3. Special Deductions and Credits

Before we explore strategies to limit taxes, let’s put taxes in the appropriate spiritual context. At John Moore Associates we believe taxes are indicative of God’s provision. I understand why you may not feel like praising God after writing a big check to the US Treasury, however taxes come with prosperity. Almost half of US households have so little income that they pay no federal taxes.

With that context in mind, we have tax laws in place that incentivize certain behaviors through tax credits and deductions. Taking advantage of honest and legal strategies to mitigate taxes is not sinful. It’s smart.

taxplanning-imageThe charitable deduction is one of the most common methods for reducing taxes. In 2011, 75% of households with a household income of $100,000-$200,000 reported a charitable contribution on their tax returns, and 92% of households with a household income of $500,000-$1,000,000 made a tax-deductible gift or donation*. For many families, giving is sporadic at best. But at John Moore Associates, we encourage you to take full advantage of the tax benefits of charitable deduction by developing a more consistent and intentional giving strategy.

Giving Strategy

  1. Make A Plan. Develop a giving plan early in the year. Research shows that families give as much as 30% more if they have a giving plan in place. Start with the percentage of income you would like to give. If you are not sure how much to give, I recommend 10% of your gross income plus 1% of your assets. You can pre-determine the recipient of most of your gifts and set up automatic contributions from your bank account, but leave some flexibility so you can respond to God’s prompting throughout the year.

Once you have this year’s giving planned, consider a strategy for increasing your giving each year. You may not have the capacity to give 10% this year, but it may be possible to at 5% and increase your giving over time.

  1. Give Growing Assets. As you develop a giving plan, consider assets as a resource, not just income. Many families have never considered sharing from their net worth, but it is a powerful concept that opens a whole new capacity to give. Specifically, consider a gift of appreciated investments. By giving an investment that has appreciated, you receive a deduction for the full value of the gifted asset, without paying the capital gains taxes on the appreciated amount. A qualified financial advisor can look at your investments and help you determine which investments are the most compatible with your giving plan.
  1. Give In Retirement. If you are over the age of 70 ½, you may have an additional opportunity to give assets. You likely have a Required Minimum Distribution (RMD) that you must take from your retirement accounts. In 2015, Congress voted to allow a distribution of up to $100,000 directly from your retirement account to a qualified charity. The distribution to charity counts toward the annual RMD and could result in significant tax benefits. You do not have to itemize your deductions to receive financial benefit from giving your RMD to charity.

The John Moore Associates team has extensive experience in gifting assets. It would be our joy to assist you in planning and executing your own asset-based gift. And although it is ultimately our clients’ decision how much they give, our guidance in maximizing the benefits of their gifts has led to over $15 Million in charitable giving in the past five years.

Learn more about John Moore Associates Generosity Tracker.

 

*Source: Congressional Research Service analysis of the IRS’s Statistics of Income 2011 Data.


The information herein has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Brian Cochran and not necessarily those of RJFS or Raymond James. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

 

Gallup poll election economy graph

Political Ideology and Investing

brian-13Published on Wednesday, March 15, 2017
Written by Brian Cochran, CFP®, CKA®, Financial Planner

It is hard to watch the news, scan social media or participate in casual conversation these days without engaging in political conversations or debate. Politics has certainly infiltrated every aspect of our lives and the results are not always positive.

I understand why politics is so important to people. The issues that currently dominate the news and social media—immigration, health care, abortion, education—are emotionally charged issues that no one should take lightly. As responsible citizens, we owe it to ourselves to be educated and involved in the issues of the day. We should also act on our beliefs in the way we live and vote.

That being said, I am concerned about the number of people who are allowing their political ideology to possibly impact their financial decision-making. Since the election I have witnessed both fear and euphoria among the clients we serve. My experience is not anecdotal based on the following poll from Gallup:

Gallup poll election economy graph

Within  one week of the election the public’s outlook for the economy changed drastically. Rational? I think not. If these were only feelings, I would not be as concerned; but such feelings tend to influence our financial decision-making.

One of the greatest challenges in investing is detaching ourselves from the many emotions and biases we may face. The allocation of your investments—or whether you are investing at all—should not be determined by an emotional response to who is occupying the White House.

To help avoid letting your feelings hurt your finances I recommend a simple—albeit steely—process for investing.

  1. Determine an investment allocation based on your goals and needs and personal tolerance for volatility and risk.
  2. Commit to a strict, evidence-based strategy for implementing and maintaining your personal investment allocation.
  3. Avoid the temptation to change your strategy by limiting your consumption of news, looking at your accounts no more than monthly and ignoring stock tips and investment advice from your neighbor, plumber and brother-in-law.

A knowledgeable and principle-driven financial advisor can bring value to each of these steps. As an objective and independent third party, an advisor can identify emotional errors that you cannot see in yourself. At John Moore Associates, our investment process focuses entirely on your financial goals, and our investment management is evidence-based rather than emotionally-charged.

Learn more about John Moore Associates’ Investing on Purpose approach.

 


The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brian Cochran and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.