How to Make Tax-Free Gifts in 2023

rolled one hundred dollar bills tied with red ribbon

rolled one hundred dollar bills tied with red ribbon

The IRS allows individuals to make tax-free gifts to certain recipients under specific circumstances. While you may not believe you are in the financial position to give tax-free gifts in 2022, what you learn may surprise you.

This post guides you on the IRS rules regarding making tax-free gifts and tips to take advantage of this tax benefit to save money on your taxes in 2022.

Annual Exclusion Tax-Free Gift

The IRS allows an annual exclusion that permits individuals to make gifts up to a certain amount to as many individuals as they want, without incurring any gift tax.

For 2022, the annual exclusion is $16,000 per recipient. This means you can give $16,000 to each of your children, grandchildren, friends, or any other individual without paying any gift tax. You can also make joint gifts with your spouse, allowing you to give up to $32,000 per recipient per year without incurring a gift tax.

Tuition and Medical Expenses Gift Exclusion

You can pay tuition or medical expenses for someone else directly to the educational institution or medical provider without incurring gift tax. While this is an incredible opportunity to save money, you should ensure that the payment is made directly to the institution or provider for the benefit of a specific individual.

You cannot gift the money to an individual with the sole purpose of using the money to pay for education or medical expenses. The money must go directly to the educational institution (like a college or university) or a medical provider.

Gifts to a Spouse Tax Exclusion

husband surprise his wife with gift of a new car

Gifts to your spouse are generally tax-free, regardless of the amount. However, if your spouse is not a United States citizen, the annual exclusion for gifts for your spouse is $164,000 in 2022.

This is certainly something to keep in mind around the holidays when expensive gifts are often purchased.

Gifts to Political Organizations Tax Exclusions

If you are involved in local, state, or federal politics, rest assured there is a tax-saving opportunity for you! The IRS allows you to make tax-free gifts to political organizations for use in political campaigns.

Like all gifts, ensure you retain all receipts in case of an audit.

Charitable Gifts Tax Exclusion

You may already be familiar with the charitable gift tax exclusion, as many people take advantage of this tax-saving tip. If this is the first time you’ve heard about charitable gift-giving, you should know that to get the gift-tax exclusion, you should make your gift to a qualified organization and ensure you obtain a receipt for the gift.

Gifts to a Trust Tax Exclusion

The IRS has specific tax allowances for trusts, including making tax-free gifts to a trust as long as certain requirements are met.

Among other things, to make tax-free gifts to a trust, the trust must be irrevocable, and you must not retain any control over the trust or the assets in the trust.

Gifts to Non-Profit Organizations Tax Exclusion

family donating gifts and toys to non profit organization

Similar to gifts made to charitable organizations, you are allowed to make tax-free gifts to a non-profit organization as long as the organization is registered as a 501(c)(3) organization by the IRS.

You can often determine the tax status of an organization by finding the information on its website or contacting them directly.

Gifts to a Tax-Exempt Organization Tax Exclusion

Like charitable and non-profit organizations, the IRS allows individuals to make tax-free gifts to a tax-exempt organization as long as the organization is recognized as tax-exempt by the IRS.

Common tax-exempt organizations include religious, scientific, and literary organizations.

Gifts to Governmental Agencies Tax Exclusion

While this gift-tax exemption may come as a surprise to some, the IRS allows you to make tax-free gifts to governmental agencies (including state or local governments) for public purposes.

Gifts to Reduce Estate Taxes

Finally, the IRS allows individuals to make tax-free gifts to reduce the value of their estate for tax purposes. The maximum amount you can gift without incurring any gift tax is the lifetime exemption amount.

For 2022, the lifetime exemption amount is $12.06 million for individuals and $24.12 million for couples.

It’s important to note that if you make gifts that exceed the annual exclusion amount or the lifetime exemption amount, you may have to pay gift tax. You may also have to file a gift tax return even if you do not owe any gif tax.

If you’re unsure if your gift qualifies for a gift tax exemption, reach out to Cook CPA Group today. We’ll help you consider the tax implications of gifts you make and answer any questions you may have.

7 Tax Tips for 2023 to Save Your Family Money

couple consulting financial advisor about tax tips

couple consulting financial advisor about tax tips

The new year is just around the corner, and it’s time to start thinking about taxes and saving your family money. Tax season can be overwhelming, but with the right strategy, it doesn’t have to be.

With a few smart moves, you can save your family money in 2022 and keep more of your hard-earned cash. At Cook CPA Group, we ensure our clients never pay more in tax than they have to. That’s why we’ve put together this post with seven tax tips you can leverage to save your family money this upcoming tax season.

Read on to learn the seven tax tips you must know to save money this year:

1. Take Advantage of Tax Credits

Tax credits are one of the best ways to save money on taxes. There are various tax credits available for families with children, low-income households, and new homeowner tax credits. It’s important to familiarize yourself with the different tax credits available and take advantage of those that apply to you.

For example, if you qualify for certain credits, such as the Earned Income Credit, you can reduce your tax bill significantly. Here are a few tax credits available for families to get you started:

2. Contribute to a Retirement Plan

Contributing to a retirement plan is a great way to save money on taxes. Most retirement plans have tax-deferred contributions, meaning you don’t have to pay taxes on the money you contribute until you start withdrawing it. This can help you save money in the long run.

Contributing to a 401k (if your employer provides such a benefit) or a traditional or Roth IRA can help lower your taxable income and reduce the amount of taxes you owe. While it may be daunting to open up a retirement account with all the options available to investors, you should know that the earlier you start contributing to a retirement plan, the more you’ll be able to save.

If you need additional guidance on contributing to your employer-sponsored 401k or setting up an IRA account for you or a member of your household, don’t hesitate to reach out to us. We can help inform you of the tax advantages of setting up these financial accounts.

3. Take Advantage of Deductions

calculator on one hundred dollar banknotes

Deductions are another great way to save money on your taxes this year. Deductions reduce your taxable income, which can help decrease the amount of taxes you owe. There are a variety of deductions available, including deductions for medical expenses, charitable donations, and business expenses.

It’s important to do your research and determine which deductions you may qualify for. Here are a few articles to help you get started on researching tax-saving deductions:

4. Set Up a 529 Plan

A 529 plan is a college savings plan that allows you to save money for your child’s college education on a tax-deferred basis. Contributions to a 529 plan are tax-deductible, and the money can be used for a variety of college expenses, including costly books and materials.

Setting up a 529 plan is a great way to save for your child’s future. If you have children in college or have a college-bound child, check out this article to learn more ways you can save money:

5. Make Charitable Donations

volunteer preparing donation to charity

Donating to a charity can help you save money on your taxes. Any donations you make to a qualified charity are tax-deductible, meaning you can deduct them from your taxable income.

You can use the money you save through your charitable donations to invest in other tax-saving strategies like retirement plan contributions or tax-deductible gifts to your children.

6. Invest in a Tax-Advantaged Savings Account

Tax-advantaged savings accounts can help you save money on your taxes. These accounts, including Roth IRAs and Health Savings Accounts (HSAs), allow you to save money while earning interest. The money you contribute to these accounts is not taxed, meaning you can save more money for your family over time.

To learn more about setting up an HSA or Roth IRA, contact us today. We will explain the differences between these tax-advantaged savings accounts to help you decide which plan makes the most sense for your current and future financial goals.

7. File Your Taxes Early

Filing your taxes early can help you save money on your taxes. And no, we aren’t just saying that because we’re expert tax professionals! By filing your taxes early, you ensure you receive any potential refund sooner while avoiding any late filing penalties.

Every penny counts when your goal is to save money during tax time. The tax professionals at Cook CPA Group are committed to ensuring you never pay more taxes than you have to.

Filing your taxes with the right accounting firm means you are always financially prepared. Planning your tax filing ahead of the deadline guarantees you won’t be surprised by any last-minute filings.

Schedule a free consultation with the tax experts at Cook CPA Group to maximize your family’s tax savings.

6 Medical Expenses You Didn’t Know Were Deductible

stethoscope calculator and pen on medical expense report

stethoscope calculator and pen on medical expense report

With the cost of US healthcare sharply rising, you may wonder if you can deduct medical expenses to save money on your taxes this year. The short answer is yes. The IRS allows taxpayers to deduct qualified medical and dental expenses exceeding 7.5% of a taxpayer’s annual adjusted gross income (AGI).

While you may be familiar with some common qualified medical expenses like doctor’s visits, diagnostic tests, and hospital visits, there are many other deductions you should know. The following list outlines six lesser-known medical expenses you can deduct from your taxes this year.

Deductible Medical Expenses

1. Alternative Medical Expenses

Alternative medical practices are quickly becoming a helpful source of medical intervention. From naturopathic doctor visits, chiropractic care, and acupuncture appointments to Christian Science practices, there is a robust list of deductible alternative medical expenses.

Although this is a great tax-saving opportunity, be careful about writing off non-prescription supplements or treatments. These are non-eligible expenses that are expressly forbidden to be deducted from your tax bill. Read this IRS guide for a full list of eligible and non-eligible alternative medical expenses.

2. Infant Care Expenses

family managing budget for their children hospital expenses

It’s no secret that preparing for a baby’s arrival is costly. Luckily, there are several infant-related care expenses you can deduct to save money for other childcare expenses in the future. If you or your spouse has decided to breastfeed, any breast pumps or other lactation aides are deductible medical expenses. This includes the pump, accessories, nursing pads, topical creams and ointments, and breastmilk storage bags.

Alternatively, if your doctor has prescribed prescription-grade infant formula for your baby, you can also deduct those expenses from your taxes. While over-the-counter baby formula is not considered tax-deductible, it may be worth speaking to your provider about prescription formulas that may fit your baby’s needs while reducing your overall tax bill.

3. Disability Accommodations & Home Improvements

As we noted in a recent article about home improvement write-offs, some home improvements to accommodate disabilities or chronic illness are deductible medical expenses. If you, your spouse, or your dependent(s) require permanent home improvements to provide daily medical-related care, you can likely deduct such expenses from your tax bill.

The following are some examples of deductible medical-related improvements you should know:

  • Installing entrance and exit ramps for wheelchair accessibility or ease of mobility
  • Costs of widening hallways and interior and exterior doorways
  • Adding support bars and railings to extra stability and safety around your home and property
  • Modifying kitchen counters and cabinets

Read this helpful IRS publication here, for a full list of medical-related home accommodations and improvements.

4. Medical Conferences

It’s often said that you are your best advocate when it comes to your health and well-being. It’s natural for people to invest in learning about their medical conditions to better advocate for themselves in the doctor’s office. Fortunately, certain informational-related costs are tax deductible.

You can deduct several fees if you register for a medical conference that is directly related to a medical condition or chronic illness of you, your spouse, or your dependent(s). For example, registration fees and transportation costs are considered tax-deductible expenses. However, lodging and any meals for you and/or your family are not considered eligible medical deductions.

5. Smoking Cessation Programs

man in black t-shirt breaking cigarette

If you’re looking for other reasons to quit smoking, consider the tax-saving opportunities! If you decide to stop smoking through the help of a smoking cessation program, you can deduct any program costs and doctor-prescribed treatments from your tax filing this year.

Having said this, pay careful attention to expenses that are not eligible for deductions. For example, non-prescribed treatments like the popular nicotine patches or chewables are not eligible for deductions.

6. Reproductive Health Treatments

Reproductive health treatment expenses are eligible medical deductions that you may not have known to claim on your tax return. Any costs associated with birth control pills or procedures, including vasectomies, are deductible medical expenses.

Similarly, pregnancy-related costs and treatments, including pregnancy test kits, IVF treatment, other fertility treatments, lab fees associated with these treatments, and storage of eggs or sperm are tax deductible. Additionally, any legal abortion-related costs are also tax deductible.

How To Claim Medical Expense Deductions

gavel with medicine and syringe

Deducting medical expenses is not a difficult process, but it does involve careful planning. If you decide to deduct these or other medical and/or dental costs, you must ensure those costs exceed 7.5% of your AGI.

You can determine your adjusted gross income by adding your wages, capital gains, business income, retirement distributions, dividends, and other income and then subtracting any deductions. Common deductions for individual taxpayers include retirement contributions, health saving account contributions, education expenses, business expenses, and dependent-related expenses.

You can refer to the IRS 1040 Form instructions for more information on calculating your AGI.

The second thing to remember is that you cannot file a standard deduction if you want to deduct any medical-related expenses. Instead, you must file an itemized deduction using Schedule A Form 1040 or 1040-SR.

Additionally, if you’re self-employed, you may be eligible for the self-employed health insurance deduction for payments on insurance policies for you, your spouse, and any dependents.

To confirm whether your medical expenses are eligible for a deduction, reach out to us today. We will help you determine eligibility and ensure you file your deductions correctly.

5 Child and Dependent Expenses You Can Deduct From Your Taxes This Year

couple with their children consulting lawyer about tax deduction

couple with their children consulting lawyer about tax deduction

The rising cost of living is a significant burden for many U.S. families. While you can’t deduct grocery bills or utilities from your tax bill, other family-related expenses can reduce your overall tax bill this year. From child care and adoption fees to education-related expenses, there are several tax credits you should leverage.

This post outlines the five child and dependent expenses that may just earn you a deduction this tax season, including:

  • The Child Tax Credit
  • The Child and Dependent Care Tax Credit
  • The Adoption Tax Credit
  • The American Opportunity Tax Credit
  • The Lifetime Learning Tax Credit

Keep reading to see if you qualify for any or all of the five tax credits.

Child Tax Credit

You may have heard the buzz around the Child Tax Credit (CTC) in recent years. First introduced in 1997 by President Clinton, the Child Tax Credit is a fully refundable tax credit for children under 17. In 2021, the Biden-Harris Administration expanded the Child Tax Credit to $3,600 per child under the age of 6 and $3,000 for other qualifying children under 18.

However, that expansion ended in 2022, and the credit will return to the original $2,000 per qualifying child under the age of 18.

How to Qualify for the Child Tax Credit

There are two factors to qualify for the Child Tax Credit: qualifications for you as the filer and qualifications for the child or dependant.

To qualify for the full CTC for each child, you must ensure you have a qualifying child and that the child has a valid Social Security number. Additionally, your annual income cannot be more than:

  • $150,000 for married filing jointly, or if you are filing as a qualifying widower
  • $112,500 for head of household filers
  • $75,000 for single filers or married filing separately

Your child or dependent must meet the following criteria to be eligible to file for the CTC on your tax filing:

  • Be under 18 at the end of the year
  • Be your child, stepchild, eligible foster child, sibling, stepsibling, half-sibling, or descendant (e.g., grandchild, niece, or nephew)
  • Provide no more than 50% of their own financial support during the tax year
  • Live with you for more than half the year
  • Be claimed as a dependant on your return
  • Not file a joint return with a spouse
  • Be a U.S. citizen, national, or resident alien

If you and your child or dependent meet the eligibility criteria, you can claim the Child Tax Credit on your tax return by filling out Form 1040 and submitting your Individual Income Tax Return with Schedule 8812 attached.

Child and Dependent Care Tax Credit

single mother working on her application for tax deduction

Another potential money saver for your family is the Child and Dependent Care Tax Credit. This credit provides cost savings for families who paid for care for their child or dependent. Child care can include care provided at a center, daycare facility, camps, or relative. At this time, state-based care does not qualify for the credit.

How to Qualify for the Child and Dependent Care Tax Credit

To qualify for this cost-saving credit, you:

  • Paid for care for a qualifying child or dependent under the age of 13
  • Paid for care for a qualifying child or dependent to look for employment
  • Paid less for care than your total yearly income

If you meet the eligibility criteria, you can claim the Child and Dependent Care Tax Credit on your tax return by filling out Form 2441 with your Individual Income Tax Return.

Adoption Tax Credit

happy family after the approval of the adoption

If you adopted a child or are in the process of adopting a child, you may qualify for the Adoption Tax Credit. It’s well-known the adoption process is lengthy and expensive. Luckily, the Adoption Tax Credit can help you save up to $14,440 per eligible child. Though there are some income limits and other eligibility factors, it may be worth your time and effort to consider filing for this tax credit.

How to Qualify for the Adoption Tax Credit

To qualify for the Adoption Tax Credit, the child you are adopting must be under the age of 18 or, if over the age of 18, must be unable to care for themselves. Additionally, the adoption credit is based on your modified adjusted gross income (MAGI), and you should check the IRS website or reach out to us to confirm the MAGI amount for 2022.

Qualified expenses include adoption fees, legal fees, adoption-related travel expenses, and other directly related expenses. To research other related expenses such as home study or same-sex parent adoption credits, read this article published by the IRS.

If you meet the eligibility criteria, you can claim the Adoption Tax Credit on your tax return by filling out Form 8839 with your Individual Income Tax Return.

American Opportunity Credit

mother and her college student daughter doing application for aoc

If your child or dependent is a student at an eligible higher education institution, you may be eligible for an annual credit of $2,500 per student through the American Opportunity Tax Credit (AOTC).

AOTC provides tax credits for qualified education expenses paid for during the first four years of higher education, including tuition, fees, books, supplies, equipment, and other related student expenses.

How to Qualify for the American Opportunity Tax Credit

Similar to the Child Tax Credit, there are two categories of eligibility: one to determine student eligibility and the other to determine if you can claim the credit on your tax return.

To be eligible for AOTC, a student must:

  • Earning a degree or education credential
  • Be enrolled at least part-time for at least one academic period beginning in the current tax year
  • Not have claimed the credit for more than four tax years
  • Not have a felony drug conviction

To claim AOTC on your return, you must have a MAGI of $80,000 or less or $160,000 for married couples filing jointly. You may be eligible for partial credit if your MAGI is over $80,000 but less than $90,000 or over $160,000 but under $180,000 for married filing jointly.

If you meet the eligibility criteria, you can claim the American Opportunity Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.

Lifetime Learning Tax Credit

graduating student doing documents for llc

In addition to the ATOC education tax credit, you may be eligible to save up to $2,000 on your tax bill by claiming the Lifetime Learning Credit (LLC). The LLC covers qualified tuition and related expenses. Unlike the AOTC, the LLC helps students pay for undergraduate, graduate, and professional degree courses and other related expenses.

Although the AOTC provides a slightly higher return, there is no limit on the number of years you can claim the tax return. To claim the LLC on your tax return this year you, your dependent, or a third party must have paid for qualified education expenses for higher education and paid the education expenses for an eligible student enrolled at an eligible education institution. Additionally, the eligible student must be yourself, your spouse, or the dependent listed on your tax return.

How to Qualify for the Lifetime Learning Tax Credit

To be considered an eligible student and claim the LLC, the student must be enrolled or taking courses for at least one academic period at an eligible education institution to get a degree or credential or improve job skills.

If you meet the eligibility criteria, you can claim the Lifetime Learning Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.

There are many ways to save money on your tax return, especially if you have a child or dependent. While these five tax credits are a good place to start, the best way to get the lowest tax bill is by reaching out to a professional accountant to walk you through tailored solutions.

Schedule a free consultation with Cook CPA Group today to leverage these tax credits on this year’s tax return. Our team of expert and approachable accountants make sure you don’t pay more than you have to.

Tax-Saving Tips for Your College-Bound Kids

Tax Saving Tips


Tax Saving Tips

With colleges across the country opening their campuses for a fresh new set of students, it’s the perfect time to consider the tax savings your family can take advantage of this tax season. While every family’s economic situation differs, several tax credits and deductions are available to most families with college-bound kids.

Continue reading to learn the tax-saving tips your family can use this year to save on college-related expenses come tax time.

Tax-Saving Credits For College-Bound Kids

As the parent or guardian to a first-time college student, you know how much paperwork and filing goes into assuring the child in your life is set up for success. Many families get so bogged down by the overwhelm of it all that they don’t take advantage of several tax-saving options.

One of the easiest ways to save money on your taxes this year is by carefully considering tax credit options for eligible students and their families. The two most common tax credits your family can leverage to save money this tax season are the American Opportunity Tax Credit and the Lifetime Learning Credit.

American Opportunity Credit (AOTC)

graduation cap with tassel and wrapped 100 dollar bills

The American Opportunity Credit helps college-bound families pay for education expenses in the first four years of post-high school schooling. Although subject to income limitations and strict requirements, your family could receive a maximum annual credit of $2,500 per eligible student. Additionally, your family could receive up to a 40% refund if you owe no tax at the end of the year.

To claim AOTC on your tax return, make sure you and the student in your family check these boxes:

  • The student is you, your spouse, or a dependent listed on the tax return.
  • Must be pursuing a degree or credential.
  • Have qualified education expenses, including tuition, books, and equipment from an eligible. institution. See this page for a list of the U.S. Department of Education’s Database of Accredited Post Secondary Institutions and Programs (DAPIP).
  • Be enrolled at least part-time for at least one academic period beginning in the tax year.
  • Not have finished the first four years of post-high school education at the beginning of the tax year.
  • Not have claimed the AOTC for more than four tax years.
  • Not have a felony drug conviction at the end of the tax year.
  • Modified adjusted gross income (MAGI) is $90,000 or less (or $180,000 for married filing jointly).

If your family meets these requirements and is qualified to apply for the AOTC, complete Form 8863 and attach it to your Form 1040 or Form 1040A to apply.

For more information, visit the IRS webpage for the American Opportunity Tax Credit or reach out to us today.

Lifetime Learning Credit (LLC)

parent and student applying for loan

The Lifetime Learning Credit is another great tax-saving opportunity for families wanting to offset the cost of tuition and education expenses for the student in their life. Although subject to income limitations and other requirements, your family could receive a maximum annual credit of $2,000 per tax return.

Unlike the AOTC, the LLC has no limit on the years you can claim the credit and has less stringent eligibility requirements. Be aware you cannot claim both the LLC and AOT in the same tax year.

To apply for the LLC, make sure the student in your life meets these requirements:

  • The student must be yourself, your spouse, or a dependent listed on your tax return.
  • Have qualified education expenses, including tuition, books, and equipment from an eligible institution. See this page for a list of the U.S. Department of Education’s Database of Accredited Post Secondary Institutions and Programs (DAPIP).
  • Be taking higher education course(s) to get a degree, credential, or improve job skills.
  • Be enrolled for at least one academic period beginning in the tax year.
  • Modified adjusted gross income (MAGI) is between $59,000 and $69,000 (or $118,000 and $138,000 for joint returns).

If your family meets these requirements, and are qualified to apply for the LLC, complete Form 8863 and attach it to your Form 1040 or Form 1040A to apply.

For more information, visit the IRS webpage for the Lifetime Learning Credit or reach out to us today.

Tax-Saving Deductions For College-Bound Kids

stack of coins calculator and miniature college school model

As college tuition and related education fees increase, more and more students and their families must take on student loans. According to recent census data, around 13.5% of Americans have some form of student loan debt. And while this debt is a financial burden, there are some ways to save money during tax season.

The two most common tax deductions your family can leverage to save money on tuition and related college expenses this tax season are the Student Loan Interest Deduction and the 529 Plan Contributions.

Student Loan Interest Deduction

Your family or the student in your life can take advantage of up to a $2,500 tax deduction. Including required and voluntary pre-paid interest payments, the deduction can either be up to $2,500 or the amount of interest you paid during the tax year, whichever is less.

To claim the student loan interest deduction, the following requirements must be met:

  • You paid student loan interest during the tax year.
  • The loan holder is legally obligated to pay interest on a qualified student loan.
  • Tax filing status is married filing jointly.
  • Modified adjusted gross income (MAGI) is less than the annual limit.
  • If filing jointly, neither spouse can be claimed as a dependent on someone else’s return.

If your family and the student in your life meet these requirements, and are qualified to apply for the student loan interest deduction, make the deductions directly on Form 1040.

For more information, visit the IRS webpage for the Student Loan Interest Deduction or reach out to us today.

529 Plan Contributions

graduation cap on calculator with pen and dollar bills

Operated by the state or an educational institution, 529 plans allow your family to save for college and other higher education. Any earnings in the 529 plan are exempt from federal taxes and are often exempt from state taxes when you use the funds for qualified education expenses.

Although 529 plans are not tax deductible at the federal level, many states offer deductions or special tax credits for these types of contributions. Check out this site for a list of states that offer deductions or tax credits and the corresponding deduction or credit.

Regardless of deductions or credits available in your state, investing in a 529 plan remains an advantageous way to grow education-related savings tax-free.

If you have any questions about 529 plans or how your family can leverage tax credits or deductions on your next tax filing, book a consultation call with us. We’ll walk you through all your tax-saving options and ensure you never pay more than you have to.

90 90 90 Rule

the 90 90 90 rule

This is the final series with Ed Cotney as he concludes with an in-depth discussion of the IRA rules to consider other approaches to address required minimum distributions.

If you have an IRA or 401k and live to be age 90, and if all you do is take the required minimum distributions out once you turn 72, chances are you’re still going to have 90% of your IRA intact. So if you have a million-dollar IRA today and you’re 72 years old, chances are when you die, about $900,000 will still be in your IRA.  Hence the 90 90 90 rule.

2020 Inherited IRA Distribution Rules and Risks of the 10-year rule

Giving It All At Once

2020 inherited ira distribution rules

Proceeds will be distributed all at once when you die. This will go on top of your children’s earned income resulting in a higher tax bracket.

10 Year Rule

The kids can let the money stay in the IRA for up to 10 years, and they just have to fully take out the inherited IRA after you die within ten years. There’s some risk exposure with this. The Kids have the right to take out their portion at any given time within the ten years after you die, and they will need to file a 1099r form.

If we do this ten-year rule, while the money is in the 10-year stretch rule; you need to ensure your kids don’t get enough bankruptcy or judgment. If one child does, they could lose the inherited IRA and could even pay a tax bill. You can check the Clark V. Ramaker Case as an example.

A Story Of How Converting IRA To CRUT Helps A Widowed Spouse

family smith scenario

Tim and Susan want to transfer their wealth when they’re dying, their children free from tax, safe from lawsuits, and safe from creditors and predators. Tim passed away, and Susan’s age now is 80.

They have four kids, Susan has a house worth four hundred thousand dollars, and they have cash of $400,000, and Susan and Tim’s combined IRAs are $800,000.

The 1st kid, Mike, is a successful doctor and has a wonderful job. The 2nd daughter, Mary, didn’t marry very well. In fact, after Tim dies, his husband says, “I can’t wait for your mom to croak. This way, we can go buy a new truck and a bass boat”.

The 3rd son, Ed, is in a rocky third marriage, but he’s good with money. He’s good-looking too. The last son, Dan, is not good with money, is divorced, and looking for work.

Susan’s concerned that Dan will just waste his inheritance money and have to borrow from his siblings.

Taxes Issues Upon Death Of Susan

  1. House – No tax, because of Step up in basis
  2. Cash – No tax, because of Step up in basis
  3. IRA/401K – Will have an Ordinary Income Tax

How The Charitable Trust Come In-Play

ira to charitable remainder unitrust tax benefits

Calculating the total value of the asset, we got $1,600,000. We know that the non-ira assets, the house, and the cash will go to the children with zero tax, and the estate plan says that when Tim and Susan die, the $800,000 IRA goes in four equal distributions to the kids.

When Susan dies, the $800,000 will go to a charitable trust. This trust is designed to be a 20-year income payout to the four children using a very conservative number of 5.3%. We’re going to distribute $42,000 divided by four, so each child will get about $10,000 to $11,000 for the next 20 years. In total, we’re going to distribute out $896,000 of taxable income to the kids.

Now, here’s what’s cool about this strategy. This $800,000 has a high degree of asset protection from judgment, creditors, and predators. So, for example, in year 4, after Susan dies, Brother Dan gets into a divorce. He is receiving an income stream from the charitable trust but can’t take any money from it—that way, protecting himself.

And for Mike, the doctor, this is a smart deal too. It’s not a question of will Mike be in a lawsuit as a doctor. It’s a question of how many lawsuits he will be in during the rest of his life. So the last thing he needs to get is something that doesn’t have some form of creditor protection.

The last benefit from this is at the end of 20 years, after this charitable trust has paid out nearly $900,000 to the kids, almost $900,000 will go to her designated church.


This is not a multi-million dollar Warren Buffett strategy. This strategy works for anybody with at least $500,000 in qualified money, like a traditional IRA or 401k. This is a strategy where using a charitable trust provides a beautiful income stream to the kids and a beautiful gift to your designated charity.

There’s nothing severely advanced or complex here. You may have to spend a little bit of money for the lawyers to draft this, but this blows the doors of leaving an inherited IRA to a child so that they can take the money out over ten years at some point. By using charitable trust, we are making money off the IRS.


Charitable Tax Harvesting

putting coins in a piggy bank

The next video is part two of advanced tax planning options as this topic covers how to use charitable deductions to minimize capital gains.  Please feel free to watch the video or read the transcript.


The Government Confiscatory Tax System

We all know that we live in a confiscatory tax system. We make money from income capital gains, and we know that we get the keep a part of it and that we get to be mandatory donors to the IRS and franchise tax board charities.

We live in a philanthropic confiscatory tax system where depending on how much money you make, you may pay more or less, but a portion of whatever you’re doing will support the IRS.

What We Don’t Know

reactive tax planning and proactive tax planning

  • 60% of our income tax is optional
  • 100% of long-term capital gains tax can be optional
  • 100% of estate tax is optional

How Do You Pay Less Tax?

No tool makes it work for everybody and everything. But generally, the three main things that can help you pay less tax are insurance, business or trust, and a charity. Effective tax planning usually involves these three different things working together to create optimized opportunities.

Question: What is the maximum amount of money or assets a person can donate to a charity each year?

Answer: No Limit!

Maximum Charitable Adjusted Gross Income Deduction Rules

Schedule A, Line 11 –  Cash= 60% (Can be 100% as of 2022 because of the Secure Act)

Schedule A, Line 12 – Appreciated Assets(Eg. Stocks and Real Estate) = 30%

If your adjusted income this year is $100,000, the most you can claim as a charitable deduction for cash under most circumstances usually is sixty percent or sixty thousand dollars.

If you give up to 60,000 to charity and claim it as a gift, you have reduced your adjusted gross income from 100,000 down to a 40,000 tax event. In doing so, you have probably not only reduced your taxable AGI, but you may have a lower tax rate. You can drop down one or two thresholds to get you into a more favorable income tax deduction

Example of using charity for people in 50% tax Bracket

If you have a $1,000,000 AGI, normally, you will be in a 50% tax bracket and have to pay 50% tax to the IRS. That means $500,000 goes to your tax, and you take home $500,000. But if you decide to gift $50,000 in cash to your IRS-approved charity, you can save $25,000.

This is how it works. Now that you gift $50,000 to a charity, you can include that in your Schedule A, Line 11. By doing so, you can get a $25,000 tax deduction. Your current AGI now becomes $950,000; you only have to pay $475,000 of your tax and used the $25,000 tax deduction.

Income and Captain Gains Tax Rescue Play

income and capital gains tax rescue play

Now, let’s make this more interesting. What if five years ago, you had $40,000 burning a hole in your pocket. You went out to your financial planner to buy four positions for $10,000 a piece. That will be your basis, after-tax money.

Two of those positions did really well, and we call them racehorses. One of these positions started out pretty good, and then about two years down the road becomes flatlined. It grew to $50,000 in value, but for the last three years, it’s been doing nothing. Technically, you have lost an opportunity cost in this case. We call that one a donkey. The last position that you bought is hanging on for his dear life. It’s still worth $10,000, but you lost on opportunity cost.

What if you gave the $50,000 donkey to a charity? If you tried to sell the $50,000 stock and gain $40,000, you’re going to pay tax. Well, let’s think a little bit differently. So if you give the $50,000 as a block of stock that has a basis of $10,000 to a charity, technically, the charity’s going to turn it around and sell it. The charity has the same net effect.

If your charity doesn’t have a brokerage account, tell them to open up one. They’re not making it easy for donors to donate by not having one. So you better ask them to have one.

So you tell your financial planner to give the $50,000 value of the stock to the charity. The Charity converted that stock into cash. You get rid of the donkeys that are going to cost you money if you sell them, and you get $15,000 of money off the IRS. You may be confused, but let’s check out the image below.

giving cash or stock to charity comparison

On the left side, it shows you gave $50,000 of cash and bought you $25,000 off the tax statement. On the right side, you gave a charity $50,000 of stock that had a basis of $10,000. Now you’re in a 50% tax bracket on the tax form.

On the tax form, it’s the same. It’s the same deduction on the tax form except for one thing. Notice the basis here. In this case, $10,000 of basis bought you $25,000 of tax savings. Now, that’s $15,000 money you made off the IRS.


Overall, first, determine if you have highly appreciated poorly performing assets. You may want to consider making money off the IRS while still accomplishing your philanthropic objective.

At an early age, most of us were taught just to give cash to charity, and that’s all we’ve ever been doing. If you like making money off the IRS and still want to help your chosen charity, you may want to look at this concept.


Charitable Trust Tax Planning

building and operating business tax exit play

This is part one of a video series discussing various advanced tax planning concepts.  The majority of this discussion covers charitable remainder trusts. Feel feel to watch the video or read the transcript.

John And Mary Smith likes to sell their 11 million dollar business. The total value of the assets (Business and Commercial Building) is around 11 Million Dollars. If they do nothing, their tax with the business will cost them around $1,650,000.000 and $2,000,000 for the commercial building. They go home with 7.35 Million, and the IRS goes home with 3.65 Million.

Using Charitable Trust

building and operating business tax exit play

A charitable trust is an irrevocable trust. A charitable trust is a tool that has two jobs. One, to give you an income stream normally for life, and when you and your spouse die, whatever is left in that trust goes to the charitable structures you like. This could be Red Cross, Salvation Army, or whatever charity comes to mind.

We put the building in this charitable trust. This charitable trust is a tax-exempt irrevocable trust.  By doing this, we bypass all the capital gains and recapture tax. So, in this case, if they put a 5.5 million dollar highly appreciated building into a charitable trust, there’s no tax. Another benefit is that the IRS is going to give them a charitable income tax deduction, in this case, 1.65 Million Dollars.

john and mary smith transaction

So if they sell the business and donate that building into the charitable trust, they’re almost going to be zero tax. It may take them a couple of years as far as tax returns to enjoy all these benefits, but it boils down to higher annual income.

Now you may say, that their kids aren’t getting the value of that building when they die. Then, let’s just use some money to buy a life insurance policy to replace that value. In effect, the IRS just paid for the life insurance policy.

john and mary smith annual income comparison

This strategy is not new. It’s just new to some people or even you. So when you hear people talking about charitable tax planning, those are the people who have figured out that there’s a way that we can do more good for everybody involved and put a lot of money in the hands of a charitable organization.

We’ve done several strategies now on the death of John and Mary. We’ve done seven million dollars going to charity.  We replace the value going to the charity using life insurance.  The life insurance all goes tax-free, assuming the law doesn’t change in respect to step up in basis rules. We’ve increased the income to 159,000 a year for the rest of their life.

tax savings upon death


A Tax Strategy You May Be Missing

One of my joys in April (just before tax season is over) is getting the iPad all cleaned up and updating the app to watch the Masters. The beautiful course is a needed refresher that helps me to persevere the last few days until April 15. The scenery is stunning, the competition is rigorous and the unexpected seems to happen. The app has many ways to watch the competition such as focusing on specific holes like Amen corner or player groupings. As my mind drifts into a post tax season mode, I wonder what it would be like to watch in person one year.

Augusta tax rule
Amen Corner at Augusta Golf Club

There are houses on the course that one must be able to rent….

How much is it to rent?  Do they pay taxes on the rental income?  Surprisingly, the answer to the tax question is they probably don’t pay taxes: the tax code has something called the “Augusta Rule.”  This strategy was created to allow residents of Augusta, Georgia to rent their homes during the Masters’ golf tournament, without having to include this rental income on their tax returns.

The Augusta Rule 

The Augusta Rule has become a tax planning strategy that allows your business to pay rent to you for the purpose of holding business-related meetings in your primary residence or vacation home. For example, if you have a monthly meeting with the board of directors, your company can pay a reasonable amount to rent your home to conduct these meetings. Your company gets to take an expense deduction on the business tax return and you do not have to report the income on your personal tax return. This can be used for a maximum of 14 days each year. Keep in mind that if you go over the maximum of 14 days, you will have to report the entire rental income, and you will not receive any tax benefit since you will have to report the money as rental income on your personal return.

Tax Savings for Your Business 

According to the Augusta rule, you can rent out your home to your business (or for other purposes like Airbnb) for a total of up to 14 days each year. This home can be located anywhere in the United States, and the income from the rental will be excluded from your taxable income. For example, a rental expense of $35,000 (paid to you) generates your corporation $7,350 in tax savings while providing you $35,000 of tax free income.

Establish Rental Rate  

To establish a reasonable rental price you first need to document local pricing standards. You can do this by contacting at least three local establishments where businesses would normally have meetings, such as country clubs or hotels, to get an idea of venue costs in your area. 

You can use your home for a variety of business purposes, including planning sessions and even company parties. It’s recommended that you schedule your meetings in your calendar system and send out an agenda, if possible, since this provides additional documentation at tax time. 

There is no minimum participant requirement for these meetings, but keep in mind: 

  • The daily rental rate doesn’t include the cost of business meals. 
  • The home can’t be considered a full-time rental property. 
  • If you rent out your home for more than 14 days, you’ll have to report all of the income, and you won’t get the tax benefit.

Execute a Rental  Agreement 

To comply with the tax code, a written rental agreement is required between yourself and your company.  Additionally, thorough documentation supporting the rental price must be maintained as well as meeting documentation such as meeting minutes or notes.

Furthermore, to take advantage of the Augusta rule, the business entity structure must be an S corporation, C corporation, or partnership. It can’t be a Schedule C (self-employment income), unless the entity is a Single Member LLC. 

So, if you want to make your accountant and other employees happy, post tax season, consider scheduling a tax planning meeting at your house, on that course near the Masters…and we can help you be compliant with IRS regulations.

Augusta Rule
Augusta Golf Club at Sunset
References: Internal Revenue Code sections and related regulations include PLR 8104117; IRC Section 280A; IRC Section 274(a)(1)(B);IRC Section 267(a)(2); IRC Section 262; IRC Section 162; Gregory v Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v United States, 435 U.S. 561, 573 (1978); Rev. Rul. 76-287; Leslie A. Roy v Commr., TC Memo 1998-125 PLR 8104117