November 17, 2017

Six Ways to Make Your Money & Your Impact Go Further Before End of 2017

Before I get into the six ways to make your money and your impact go further, consider current talks regarding tax reform. They can influence your money and your impact. The last major overhaul in taxes was in 1986, 31 years ago. I expect the Republican Congress to pass a tax bill so they can claim victory going into the year-end holidays. The Republicans can pass a tax reform bill without the Democrats if they find common ground in the reconciliation bill, which reconciles differences between the current House and Senate bills.

Both tax bills in Congress call for the reduction in tax rates and loopholes. Who benefits most will depend on individual situations. Lower corporate tax rates, in general, improves corporate profits. But current stock prices in my opinion already reflect the prospects of lower corporate taxes. The outsized gains in small cap stocks in recent months gives confirmation. Small cap stocks have higher effective tax rates and would benefit more from lower taxes. Disappointment would add volatility that could quickly reverse gains if Congress fails to pass tax cuts.

1. Look Before You Invest – Year End Fund Distributions

At Candent, I am mindful of distributions that many mutual funds make before year-end. After a year of strong gains, portfolio managers may make distributions as they adjust their portfolios. Distributions from funds held in non-qualified accounts may be subject to tax. Someone buying into such a fund would effectively get taxed on gains that did not benefit them. Contact me if you want help in reviewing your choices for accounts not overseen by Candent.

2. Shift Large Medical Expenses to 2017(?)

At present, people can deduct medical expenses if the expenses exceed 10% of their adjusted gross income. The House bill would remove the deduction for tax years after 2017.  The Senate bill keeps the deduction. The after-tax cost of medical care would be much higher if the deduction goes away.

3. Make charitable contributions in 2017 with appreciated stock

Consider using appreciated stocks instead of writing a check for your charitable donations. The reason is simple. By gifting appreciated stock, donors would be using pre-tax dollars. They would avoid paying taxes on realized capital gains that would result from a stock sale. The money in a checking account are after-tax dollars. Donations can be tax deductible if they are itemized on tax returns. Getting an itemized deduction in 2018 for charitable contributions may be more difficult if the Republican tax bill is passed. Both House and Senate bills include provisions to increase the standard deduction amount. A larger standard deduction increases the threshold for itemizing to be more beneficial.  I can work with your tax advisor on the merits of donating appreciated stock.

4. Maximize the impact of your charitable donations

Your impact can be much greater with the help of corporate matching programs. My wife’s company offered to match $2 for every $1 we donated to the victims of the fires in Napa this year. Matching also helped my wife and I help our team reach our fundraising goals in annual Walk to End Lupus in San Francisco. As members of the Walk Committee, my wife and I always remind donors to submit their requests before yearend. Matching programs helped our team raise over $12,000 this year

5. Use up the balances in your 2017 Flexible Spending Account (FSA)

The FSA is a use or lose type of account for qualified expenses such as medical or dependent care. Some employer plans give participants a grace period. They may have several weeks in the new year for people to use up their 2017 contributions. If you are not sure, now is time to confirm with your plan administrator

6. Max out contributions to your Health Savings Account (HSA)

The triple tax-free nature of the HSA makes it a favorite. Money goes in pre-tax, grows without tax, and comes out tax-free if used for qualified medical expenses. HSAs are relatively new.  HSA eligibility depends on enrollment in a high deductible health plan.  Unlike FSAs, money in HSAs are not a use or lose type of account. HSA balances can be invested for long term growth. The caveats are that HSA funds used for nonqualified medical expenses are subject to a 20% penalty. Some people have asked me about contributing to a 401(k) plan for retirement versus an HSA for medical expenses. In general, I would first consider if my employer is offering to match contributions into the 401(k) and the HSA. If possible, take full advantage of both.  Contact me if you need help figuring how much and to which account.


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