Planning for marriage should involve more than just picking out invitations and deciding whether you should serve chicken or fish at the reception. More importantly, you’ll want to take a look at how marriage will impact your financial situation. And while there are a number of issues you’ll need to think about, careful planning can increase the likelihood that you’ll have financial success as you enter this new chapter in your life.
Consider a prenuptial agreement
If either you or your future spouse has or may inherit substantial assets, or if either of you has children from previous marriages, you may want to consider a prenuptial agreement. A prenuptial agreement is a binding contract between future spouses that defines the rights, duties, and obligations of the parties during marriage and in the event of legal separation, annulment, divorce, or death. A prenuptial agreement typically addresses the following areas:
Discuss your financial history
Marriage is the union of two separate individuals … and their finances. While talking about money can be a stressful topic for many couples, you’ll want to sit down and discuss your financial history and your future spouse’s financial history before you merge your money.
Start out by taking stock of each of your respective financial situations. You should each make a list of your individual assets (e.g., investments, real estate) and any liabilities (e.g., student loans, credit card debt) you may have. This is also the time to address items such as how much each of you earns and if either of you has additional sources of income (e.g., interest, dividends).
Agree on a system for budgeting/maintaining bank accounts
Right now, you are probably accustomed to managing your finances in a way that is comfortable for you and you alone. Once you are married, you and your spouse will have to agree on a system for budgeting your money and paying your bills together as a couple.
Either of you can agree to be in charge of managing the budget, or you can take turns keeping records and paying the bills. If both of you are going to be involved in the budgeting process, make sure that you develop a record-keeping system that both of you understand and agree upon. In addition, you’ll want to keep your records in a joint filing system so that both of you can easily locate important documents.
Once you agree on a budgeting system, you’ll be able to establish a budget. Begin by listing all of your income and expenses over a certain time period (for example, monthly). Sources of income can include things such as salaries and wages, interest, and dividends. Expenses can be divided into two categories: fixed (e.g., housing, utilities, food) and discretionary (e.g., entertainment, vacations). Be sure to include occasional expenses (e.g., car maintenance) as well. To help you and your future spouse stay on track with your budget:
This might also be a good time to decide whether you and your future spouse will combine your bank accounts or keep them separate. While maintaining a joint account does have its advantages (e.g., easier record keeping and lower maintenance fees), it is sometimes more difficult to keep track of the flow of money when two individuals have access to a single account.
If you do decide to combine your accounts, each spouse should be responsible for updating the checkbook ledger when he/she writes a check or withdraws funds. If you decide to keep separate accounts, consider opening a joint checking account to pay for household expenses.
Map out your financial future together
An important part of financial planning as a couple is to map out your financial future together. Where do you see yourself next year? What about five years from now? Do you want to buy a home together? If you decide to start a family, would one of you stay at home while the other focuses more on his or her career?
Together you should make a list of short-term financial goals (e.g., paying off wedding debt, saving for graduate school) and long-term financial goals (e.g., retirement). Once you have decided on your financial goals, you can prioritize them by determining which ones are most important to each of you. After you’ve identified which goals are a priority, you can set your sights on working to achieve them together.
Resolve any outstanding credit/debt issues
Since having good credit is an important part of any sound financial plan, you’ll want to identify any potential credit/debt problems either you or your future spouse may have and try to resolve them now rather than later. You should each order copies of your credit reports and review them together. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months (go to www.annualcreditreport.com for more information).
For the most part, you are not responsible for your future spouse’s past credit problems, but they can prevent you from getting credit together as a couple after you are married. Even if you’ve always had spotless credit, you may be turned down for credit cards or loans that you apply for together if your future spouse has a bad track record with creditors. As a result, if you find that either one of you does have credit issues, you might want to consider keeping your credit separate until you or your future spouse’s credit record improves.
Consider integrating employee and retirement benefits
If you and your future spouse have separate health insurance coverage, you’ll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. If your future spouse’s health plan has a higher deductible and/or co-payment or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You’ll also want to compare the premium for one family plan against the cost of two single plans.
In addition, if both you and your future spouse participate in an employer-sponsored retirement plan, you should be aware of each plan’s characteristics. Plans may differ as to matching contributions, investment options, and loan provisions. Review each plan together carefully and determine which plan provides the better benefits. If you can afford to, you should each participate to the maximum in your own plan.
Assess your insurance coverage needs
While you might not have felt the need for life and disability insurance when you were single, once you are married you may find that you and your future spouse are financially dependent on each other. If you don’t have life or disability insurance, you will want to have policies in place in order to make sure that your future spouse’s financial needs will be taken care of if you should die prematurely or become disabled. If you already have life and disability insurance, you should reevaluate the adequacy of your existing coverage and be sure to update any beneficiary designations as well.
You should also take a look at your auto insurance coverage. Check your policy limits and consider pooling your auto insurance policies with one company (your insurance company may give you a discount if you insure more than one car with them). As for renters/homeowners insurance, you’ll want to make sure your personal property and possessions are adequately covered.
Copyright 2006-2016 Broadridge Investor Communication Solutions, Inc. All rights reserved.
In one of its final actions for calendar year 2015, Congress passed the Consolidated Appropriations Act, 2016, a massive spending bill that will keep the federal government funded for fiscal year 2016. Signed into law on December 18, 2015, the legislation includes the Protecting Americans from Tax Hikes (PATH) Act of 2015 (Division Q of the Consolidated Appropriations Act), which addresses a host of popular but temporary tax provisions–commonly referred to as “tax extenders”–that had expired at the end of 2014, making many of them permanent. Some of the major provisions addressed are listed below.
|American Opportunity Tax Credit||The American Opportunity Tax Credit (a modified version of the original Hope Credit) and the credit rules–including maximum credit amount, number of years of education covered, income phaseout ranges, and refundability provisions–are made permanent.|
|Child tax credit||The lower $3,000 earned income threshold for determining the refundable portion of the tax credit is made permanent (if the credit exceeds tax liability, an amount equal to 15% of earned income over $3,000 may be refunded).|
|Credit for nonbusiness energy property||The credit is extended for two additional years (through 2016); lifetime cap of $500 remains.|
|Deduction for classroom expenses paid by educators||The $250 above-the-line deduction is made permanent–the rules that applied in 2014 are retroactively extended for 2015; starting in 2016, the limit will be indexed for inflation, and qualifying professional development expenses will be considered eligible expenses for purposes of the deduction.|
|Deduction for qualified higher-education expenses||The above-the-line deduction, worth up to $4,000, is reinstated for 2015 and extended through 2016.|
|Deduction for state and local general sales taxes||Individuals who itemize deductions on Schedule A of IRS Form 1040 can elect to deduct state and local general sales taxes in lieu of the deduction for state and local income taxes–this is made permanent.|
|Discharge of qualified personal residence debt||The exclusion from gross income of the discharge of debt associated with a qualified principal residence is reinstated for 2015 and extended through 2016.|
|Earned income tax credit||The increased credit percentage for families with three or more qualifying children and the increased threshold phaseout range for married couples filing joint returns are made permanent.|
|Employer-provided mass transit benefits||The monthly exclusion for employer-provided transit pass and vanpool benefits will be permanently set to the same level as the exclusion for employer-provided parking (applies retroactively to 2015, increasing the exclusion from $130 to $250 monthly).|
|Mortgage insurance premiums||The provision allowing premiums paid for qualified mortgage insurance to be treated as deductible qualified residence interest on Schedule A of IRS Form 1040 (subject to phaseout based on income) is extended for two additional years, through 2016.|
|Qualified charitable distributions (QCDs)||The provision allowing individuals age 70½ or older to make qualified charitable distributions (QCDs) from their IRAs, and exclude the distribution from gross income (up to $100,000 in a year), is made permanent.|
|Qualified conservation contributions of capital gain real property||Special rules for qualified conservation contributions of capital gain real property are made permanent; new rules for qualified contributions by certain Alaska Native Corporations are added for years after 2015.|
|Bonus depreciation||Additional 50% bonus depreciation is reinstated for 2015 and extended through 2019; the bonus percentage is reduced to 40% in 2018 and 30% in 2019 for most property types.|
|Exclusion of gain on qualified small business stock||The 100% exclusion of capital gain from sale or exchange of qualified small business stock held for more than 5 years is made permanent; it applies to alternative minimum tax as well as regular income tax.|
|IRC Section 179 expensing||Increased dollar amounts ($500,000/$2,000,000) associated with Section 179 expensing are made permanent and indexed for inflation after 2015; $250,000 limit on qualified real property eliminated after 2015.|
|Research credit||The research tax credit is made permanent, with new provisions effective in tax years beginning after 2015 that will provide additional benefits to some small businesses.|
|Work Opportunity Tax Credit||The tax credit is extended through 2019 and expanded (after 2015) to apply to employers who hire qualified long-term unemployment recipients.|
In addition to the tax extender provisions, the Consolidated Appropriations Act contains multiple other tax provisions, including:
- The Act delays imposition of the excise tax on high-cost employer-sponsored health coverage (the so-called “Cadillac tax”) for two years; the tax, originally scheduled to take effect after 2017, will now be effective for tax years beginning after December 31, 2019.
- The Act eliminates the requirement that ABLE accounts (tax-favored savings vehicles intended to benefit disabled individuals) be established only in the ABLE account owner’s state of residence.
- Rules relating to 529 plans are modified for tax years after 2014, including expansion of the definition of qualified expenses to include the purchase of a computer, peripheral equipment, computer software, and Internet access if used primarily by the beneficiary while enrolled at an eligible education institution.
The Act permits funds to be rolled over to a SIMPLE IRA from employer-sponsored retirement plans and traditional IRAs once a participant has participated in the SIMPLE IRA for a two-year period (effective for rollover contributions made after December 18, 2015).
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.
Stock Market Correction
- A stock market correction is when the value of an index declines 10% or more from its most-recent high.
- On average, a correction in the U.S. stock market occurs about every two years, and generally takes three months to recover.
- Despite the panic they tend to cause, stock market corrections are necessary for the health of the overall market.
The word “correction” is defined by Merriam Webster as “the act of making something (such as an error or bad condition) accurate or better.” In the context of the stock market, a “correction” occurs when an index or individual stock drops 10% from its most-recent high. Essentially, corrections are price declines that stop an upward trend.
In August 2015, for example, the Dow Jones Industrial Average, the S&P 500 Index and the NASDAQ Composite Index all fell over 10% from their respective highs in the wake of China’s slowing economy and concerns about the timing, speed and size of potential Federal Reserve interest rate hikes — qualifying as the first U.S. stock market correction since 2011. Investors watched in horror as their portfolios tumbled.
Given this, it’s understandable that a stock market correction would cause some panic among investors. But still, why would the word “correction” — which has such a positive connotation — be associated with something that causes investments to lose value?
The simple answer is that it’s because a bull market (one in which prices are generally rising) can result in stock prices rising faster than justified by underlying company earnings.
The banality and virtues of stock market corrections
Despite the alarm often triggered by stock market corrections, they aren’t typically tied to major economic crises and are actually quite common. On average, U.S. stock market corrections occur about every two years. It’s a good thing, too, because they are necessary for the health of the market.
Without the occasional pullback, stocks become overpriced or inflated, and a bull market swells to a bubble that eventually bursts — resulting in a sudden decline across broad sections of the market (known as a stock market crash). And a crash is far more likely than a correction to lead to a bear market (which is when equity prices decline 20% from a recent high).
The correction that occurred in August 2015 was unusual in that it had been four years since the last one
occurred — double the average timespan between corrections (Exhibit 1).
Exhibit 1: Stock Market Correction? It’s about time.
Source: SEI, S&P 500 Index as of 8/24/15. Shaded areas represent corrections within the current bull market.
Despite the panic the recent pullback caused, it was actually just what the market needed — because a correction can be viewed as a defence against more- profound trouble. Plus, savvy investors can treat the relatively cheap stock prices caused by a correction as a buying opportunity.
What to do in a stock market correction
What should you do if markets contract by 10% from recent highs? Just wait. U.S. corrections generally last around three months and, despite their regularity, the average annual return for the S&P 500 Index over the
last 50 years has been 9.84% (as of 8/28/2015)1. So there’s a good chance investment losses suffered in a
correction will be recuperated in the long run. And if you overreact by selling your investments, you could miss out on gains when the market bounces back. Remember, a correction is just “the act of making something better.”
S&P 500 Index: The S&P 500 Index is an unmanaged, market-capitalization weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and NASDAQ.
NASDAQ Composite Index: The NASDAQ Composite Index is an unmanaged, market-capitalization weighted index that consists of all securities listed on the NASDAQ exchange. It is often used to gauge performance of global technology stocks.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There is no assurance as of the date of this material that the securities mentioned remain in or out of SEI Funds.
There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.
Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.
Benefits of a will:
Other benefits of a living trust:
There are five estate planning documents you may need, regardless of your age, health, or wealth:
The last document, a living trust, isn’t always necessary, but it’s included here because it’s a vital component of many estate plans.
Durable power of attorney
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. If no one is ready to look after your financial affairs when you can’t, your property may be wasted, abused, or lost.
A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.
There are two types of DPOAs: (1) an immediate DPOA, which is effective immediately (this may be appropriate, for example, if you face a serious operation or illness), and (2) a springing DPOA, which is not effective unless you have become incapacitated.
Caution: A springing DPOA is not permitted in some states, so you’ll want to check with an attorney.
Advanced medical directives
Advanced medical directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can’t express your wishes yourself. If you don’t have an advanced medical directive, medical care providers must prolong your life using artificial means, if necessary. With today’s technology, physicians can sustain you for days and weeks (if not months or even years).
There are three types of advanced medical directives. Each state allows only a certain type (or types). You may find that one, two, or all three types are necessary to carry out all of your wishes for medical treatment. (Just make sure all documents are consistent.)
First, a living will allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that “serves only to postpone the moment of death.” In those states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.
Second, a durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or won’t have.
Finally, a Do Not Resuscitate order (DNR) is a doctor’s order that tells medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.
A will is often said to be the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. If you don’t leave a will, disbursements will be made according to state law, which might not be what you would want.
There are two other equally important aspects of a will:
Keep in mind that a will is a legal document, and the courts are very reluctant to overturn any provisions within it. Therefore, it’s crucial that your will be well written and articulated, and properly executed under your state’s laws. It’s also important to keep your will up-to-date.
Letter of instruction
A letter of instruction (also called a testamentary letter or side letter) is an informal, nonlegal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will (or about other things, such as your burial wishes or where to locate other documents). This can be the most helpful document you leave for your family members and your executor.
Unlike your will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public.
A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.
A living trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it’s meant to function while you’re alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether.
Not everyone needs a living trust, but it can be used to accomplish various purposes. The primary function is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate.
Depending on your situation and your state’s laws, the probate process can be simple, easy, and inexpensive, or it can be relatively complex, resulting in delay and expense. This may be the case, for instance, if you own property in more than one state or in a foreign country, or have heirs that live overseas.
Further, probate takes time, and your property generally won’t be distributed until the process is completed. A small family allowance is sometimes paid, but it may be insufficient to provide for a family’s ongoing needs. Transferring property through a living trust provides for a quicker, almost immediate transfer of property to those who need it.
Probate can also interfere with the management of property like a closely held business or stock portfolio. Although your executor is responsible for managing the property until probate is completed, he or she may not have the expertise or authority to make significant management decisions, and the property may lose value. Transferring the property with a living trust can result in a smoother transition in management.
Finally, avoiding probate may be desirable if you’re concerned about privacy. Probated documents (e.g., will, inventory) become a matter of public record. Generally, a trust document does not.
Caution: Although a living trust transfers property like a will, you should still also have a will because the trust will be unable to accomplish certain things that only a will can, such as naming an executor or a guardian for minor children.
Tip: There are other ways to avoid the probate process besides creating a living trust, such as titling property jointly.
Caution: Living trusts do not generally minimize estate taxes or protect property from future creditors or ex-spouses.
When you determine how much income you’ll need in retirement, you may base your projection on the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won’t be enough to meet your needs. If you find yourself in this situation, you’ll need to adopt a plan to bridge this projected income gap.
Delay retirement: 65 is just a number
One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit. You’ll also be able to delay taking your Social Security benefit or distributions from retirement accounts.
At normal retirement age (which varies, depending on the year you were born), you will receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced. Conversely, if you delay retirement, you can increase your Social Security benefit.
Remember, too, that income from a job may affect the amount of Social Security retirement benefit you receive if you are under normal retirement age. Your benefit will be reduced by $1 for every $2 you earn over a certain earnings limit ($15,720 in 2015, $15,480 in 2014). But once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.
Another advantage of delaying retirement is that you can continue to build tax-deferred (or in the case of Roth accounts, tax-free) funds in your IRA or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 70½, if you want to avoid harsh penalties.
And if you’re covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Some employers, to avoid losing talented employees this way, are beginning to offer “phased retirement” programs that allow you to receive all or part of your pension benefit while you’re still working. Make sure you understand your pension plan options.
Spend less, save more
You may be able to deal with an income shortfall by adjusting your spending habits. If you’re still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to drastically change your spending and saving habits. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you’ll find that your savings will last even longer. Start by preparing a budget to see where your money is going. Here are some suggested ways to stretch your retirement dollars:
- Refinance your home mortgage if interest rates have dropped since you took the loan.
- Reduce your housing expenses by moving to a less expensive home or apartment.
- Sell one of your cars if you have two. When your remaining car needs to be replaced, consider buying a used one.
- Access the equity in your home. Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts.
- Transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts.
- Ask about insurance discounts and review your insurance needs (e.g., your need for life insurance may have lessened).
- Reduce discretionary expenses such as lunches and dinners out.
Earmark the money you save for retirement and invest it immediately. If you can take advantage of an IRA, 401(k), or other tax-deferred retirement plan, you should do so. Funds invested in a tax-deferred account may grow more rapidly than funds invested in a non-tax-deferred account.
Reallocate your assets: consider investing more aggressively
Some people make the mistake of investing too conservatively to achieve their retirement goals. That’s not surprising, because as you take on more risk, your potential for loss grows as well. But greater risk also generally entails potentially greater reward. And with life expectancies rising and people retiring earlier, retirement funds need to last a long time.
That’s why if you are facing a projected income shortfall, you should consider shifting some of your assets to investments that have the potential to substantially outpace inflation. The amount of investment dollars you should keep in growth-oriented investments depends on your time horizon (how long you have to save) and your tolerance for risk. In general, the longer you have until retirement, the more aggressive you can afford to be. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments, even if you decide to keep the bulk of your funds in more conservative, fixed-income investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.
And remember, no matter how you decide to allocate your money, rebalance your portfolio now and again. Your needs will change over time, and so should your investment strategy. Note: Rebalancing may carry tax consequences. No strategy assures success or protects against loss.
Accept reality: lower your standard of living
If your projected income shortfall is severe enough or if you’re already close to retirement, you may realize that no matter what measures you take, you will not be able to afford the retirement lifestyle you’ve dreamed of. In other words, you will have to lower your expectations and accept a lower standard of living.
Fortunately, this may be easier to do than when you were younger. Although some expenses, like health care, generally increase in retirement, other expenses, like housing costs and automobile expenses, tend to decrease. And it’s likely that your days of paying college bills and growing-family expenses are over.
Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it’s easy to start overspending.
Clifford Cadle is a Registered Representative with and, Securities are offered through LPL Financial, Member FINRA/SIPC
As the holiday season approaches, with the end of one year and the start of another, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. Charitable giving can be enhanced using income tax deductions, and so it can be much more effective when it is included as part of year-end tax planning.
Assume you are considering making a charitable gift equal to the sum of $1,000 plus the income taxes you save with the charitable deduction. With a 28% tax rate, you might be able to give $1,389 to charity ($1,389 x 28% = $389 taxes saved). On the other hand, with a 35% tax rate, you might be able to give $1,538 to charity ($1,538 x 35% = $538 taxes saved).
A word of caution
Be sure to deal with recognized charities, and be wary of charities with similar sounding names. It is common for scam artists to impersonate charities using bogus websites, and through contact involving e-mails, telephone, social media, and in-person solicitations. Check out the charity on the IRS website, www.irs.gov, using the Exempt Organizations Select Check search tool. And don’t give or send cash; contribute by check or credit card.
Tax deduction for charitable gifts
If you itemize deductions on your income tax return, you can generally deduct your gifts to qualified charities. However, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). For example, your deduction for gifts of cash to public charities is generally limited to 50 percent of your AGI for the year, and other gifts to charity may be limited to 30 percent or 20 percent of your AGI. Disallowed charitable deductions may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. And be sure to retain proper substantiation of your deduction for a charitable contribution.
Year-end tax planning
When considering making charitable gifts at the end of a year, it is generally useful to include them as part of your year-end tax planning. In general, taxpayers have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at a lower rate, and time your deductible expenses so that they can be claimed in years when you are in a higher tax bracket.
For example, if you expect that you will be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction in the next year when the deduction produces a greater tax benefit. Or you might push the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction. And, if the income percentage limits above are a concern in one year, you might move income into that year or move deductions out of that year, so that a larger charitable deduction is available for that year. A financial or tax professional can help you evaluate how to make charitable gifts in a way that is beneficial to you.