There are many ways making donations can reduce your taxes, but how do you start a planned giving strategy? Which charities should you support? What type of assets should you donate? These are questions to consider. It’s also important to make sure your donation aligns with your values and fits in with your overall financial picture.
Giving to charity can often begin with something close to your heart. For instance, this year JJ Burns & Company participated in The Leukemia & Lymphoma Society’s (LLS) Light the Night Walk in honor and memory of my late father, James Burns.
He was a police officer and the day he sat down and showed me those blood test results it started a journey that changed my life. Through the darkness, LLS brought light and supported our family and especially my dad. Now we support this organization that touched our lives so personally.
Participating in an event like this is only one way to make a donation. There are many causes to support. Write down what matters to you. Think about things close to your heart you feel are important. Involve the whole family. Make a list, then select three or four ideas to start. Now think about what impact you would like to make for these causes.
Begin with more familiar groups. You can shift or expand your contributions as you become more comfortable with other organizations and as you define your financial goals. Start with charitable information services such as GuideStar.org, the BBB Wise Giving Alliance (Give.org), and CharityNavigator.org. Some allow you to review data, while others provide ratings for charities.
Time and money are not the only ways to make a donation. You can leverage your gift to support the charity and help you for the most tax benefit at the same time. Using our collaborative wealth management approach, we can work with your accountant to help analyze and explain your options.
Spread your donations throughout the year. This gives more time to evaluate the charities—and more time for the organizations to process your paperwork. If you have special requests or require appraisal before transfer, processing will likely be easier and quicker before the end-of-year rush.
Donor Advised Fund (DAF)
Are you just donating cash, or are you also considering stocks and other financial instruments? One way to increase your donation options and help create more tax benefit for yourself is with a donor-advised fund (DAF). A DAF is established at a public charity. You make contributions as often as you like and receive an immediate tax benefit. The gifts can be invested and grow tax-free. Over time, you recommend grants from the DAF account.
Annuities (CLAT & CRAT)
A charitable lead annuity trust, or CLAT, pays a charity a set amount of money over a period of time. At the end of that period, any remaining money is paid to you or your family and are free from gift and estate taxes.
A charitable remainder annuity trust, or CRAT, is the opposite. It pays you and your family a set amount over a period of time. The charitable organization receives the remaining money at the end of the period.
Activating Your Plan
Take all your notes to your financial team. At JJ Burns, we will review your ideas and see how to help you meet your wealth management goals, while also supporting the causes you feel passionate about. By collaborating with all members of your financial circle, we can help you maximize your impact and work toward your greater good.
Whether it’s going away for the weekends, for a month, or for an entire season, having a second or third home can be a blessing for families that creates lasting memories. It can also come with some significant financial considerations.
Moreover, if you’ve purchased multiple properties for investment purposes, once you get into your retirement years, you’ll want to figure out how to make the most of your portfolio of property investments to generate a steady stream of income.
Here are some key issues to think about:
Plan and Manage
In this case we mean planning about your properties—not your stock investment portfolio. Who is going to be your partner in managing the properties? If your family is not interested in management, is it worth it to hire a property manager? Secondly, do you want to eventually gift your properties to members of your family? Who can walk you through the process and give you solid tax and financial advice?
We hear about many people who spend hundreds of thousands of dollars a month renting luxurious estates and apartments. That’s certainly wonderful if you are the landlord. However, you may not have the experience or time to manage all the business aspects of such a transaction. Consider hiring a knowledgeable financial advisor who can give you the full perspective of owning and managing multiple homes, and refer you to other qualified professionals to make the most of your real estate investments.
Understand Tax Planning
When you own multiple properties, you can deduct the interest on your mortgage just as you can with your primary home mortgage. According to tax law, you can write off 100% of the interest you pay up to $1 million of total debt, which includes the mortgages on homes, as well as money spent on any improvements.
Deduct Your Property Taxes
In addition to mortgage interest, you can also deduct your homes’ property taxes. The good news is that unlike the mortgage interest tax deduction, there’s no dollar limit on the amount of real estate taxes that can be deducted on the homes that you own.
Rent Out Your Homes
For many people who own multiple properties, it makes sense to rent out your empty home when you’re not there. If you rent out your home for 14 days or less during the year, that rental income is tax-free.
However, if you intend on using Airbnb, other rental sites or a real estate broker for more than 14 days after your private rental, it’s important to know that this income is taxable. You'll want to calculate the number of days you rented your home and divide that by the total number of days you or a renter used your home. This is where an advisor like JJ Burns & Company, who’s coordinating with your accountant, can help you make the most of mortgage interest, depreciation, business expenses and other home ownership issues to stay right with the IRS.
Simplify Your Investments
Rather than own residential real estate that may be inconvenient to manage, many people look to invest in commercial buildings. These properties still generate income and may have similar tax advantages, but if professionally managed, do not require the hands-on responsibilities of home or estate ownership.
Depending on your circumstances and the number of properties you have, you may want to consider selling some properties due to taxes, maintenance or the location. You should evaluate which ones generate the most income—especially if you’re retired—and how the sale may impact your taxes.
Something else to think about when selling is how a sale can impact the balance of your portfolio and income-generating investments. At JJ Burns, we can review the full picture of your investment portfolio, pensions, IRA and 401(k)s, rental income, and annuities to give you informed advice about the steps you can take to maximize your current—and future—wealth.
Seek Legal Advice
Retirement planning, real estate, and family law are complex areas that require legal counsel. Unlike working on your homes on the weekends, this is not do-it-yourself territory.
If you decide to keep your properties to generate retirement income—or want to protect your real estate investment portfolio and pass it on to your heirs without going through probate–you can create a Limited Liability Corporation (LLC) or a Family Limited Partnership. Because the laws vary throughout states, counties and cities, it is best to leave the decision to the legal professionals.
We’ve also known about families that have spent fortunes in court, only to be torn apart battling over estates. An LLC gives each family member an equal interest, which avoids future disputes over any properties. There’s also flexibility to transfer shares, consolidate individual properties into a master LLC or into a revocable trust.
Owning a number of homes can definitely enhance your life. And investing in properties is a smart way to bring in income during retirement, as well as diversify your financial portfolio. Whether you intend to manage your properties, sell it, or pass it on to your heirs, JJ Burns can help you collaborate with all aligned professionals to create a tax-efficient plan that works best for you and your family.
Your financial well-being is our highest priority. In light of the recent security breach at Equifax—which potentially exposed 143 million Social Security numbers, birth dates, and other private information—we have put together some guidelines to help you respond appropriately.
Equifax has set up a website for determining if you were affected. There have been reports of past problems, but it seems to be working properly now. However, whether or not you were impacted this time, protecting yourself against future breaches is still important. We’ve laid out the best options for doing so.
Third-Party Credit Monitoring Services
Third-party monitoring services (like Lifelock or Identity Guard) proactively monitor your credit and alert you to potentially fraudulent activity, for a fee. Many providers will also help you restore your credit if you do become victimized by identity theft. Some offer additional services such as black market website surveillance, address change verifications, checking and savings account application alerts, and consolidated credit bureau monitoring.
If you aren’t utilizing a third-party monitoring service, you should consider taking precautions directly with the three major credit reporting agencies—TransUnion, Equifax, and Experian. You can consult with each of them on your own for little or no cost. However, doing this will require sustained vigilance on your part. With a monitoring agency, you don’t need to constantly review your credit reports.
Credit Monitoring On Your Own
A first step to consider is placing a fraud alert with the three credit reporting companies.
What is a fraud alert? A precaution notifying lenders to contact you and verify your identity before approving any new credit application in your name.
How much does it cost? There is no charge for adding fraud alerts to your credit report.
How long does it last? An initial fraud alert lasts 90 days, but may be renewed for 90 more. If you have been an identity theft victim, you may apply for a seven-year extended fraud alert.
When you place a fraud alert with any credit reporting company, they’ll notify the others to add alerts.
The next level of protection is to request a security freeze, or credit freeze. In order for this to be effective, you must contact each of the nationwide credit reporting companies individually.
What is a credit freeze? Only those you authorize can view your credit report. You use a secure code, similar to a PIN number, to allow access. However, companies that do business with you can still access your credit report data.
How much does it cost? Equifax has agreed to waive fees for all security freezes initiated by November 21, 2017. They are also offering potential breach victims one free year of their TrustedID Premier service, which provides credit file monitoring and identity theft protection. Otherwise, charges are minimal but depend on your state of residence. Some states also charge for lifting the freeze or providing a replacement PIN.
How long does it last? In most cases, freezes are in place until you remove them. In some states, they are only in effect for seven years, with options for renewal.
When you apply for new credit, you need to request a lift in the security freeze. Loan approval may be delayed, because “thawing” can take several days.
A credit lock functions like a credit freeze, but offers additional convenience.
What is a credit lock? You control access to your data by instantly locking and unlocking your account online when you want to allow a legitimate credit inquiry.
How much does it cost? There are service fees, although Equifax is waiving all fees through November 21, 2017.
How long does it last? As long as you continue to pay the fee.
Some Final Thoughts
As data breaches become more commonplace, protecting your financial security requires careful consideration. Whether you choose to lock your credit report accounts and manage them yourself, or leave them unlocked and sign up with a third-party credit monitoring service, we strongly advise you to take precautions.
When it comes to cybersecurity, vigilance is our number one weapon. You have the power to protect yourself and your loved ones. Please share this article with friends and family.
If you have questions, or if we can be of service in any way, please contact us.
Summer may be a time for light beach reads, but if you’re ready for something a bit more insightful and inspirational, here are a couple books that fit the bill. Both are highly readable and engaging, but they also deliver important takeaways that will stay with you long after you turn the last page.
Consider this a follow up to last month’s blog post about how to have a financially savvy summer!
Back by Popular Demand
Business Adventures: Twelve Classic Tales from the World of Wall Street
How can you resist a read that both Bill Gates and Warren Buffet agree is the best business book ever?
Originally published in 1969, Business Adventures by New Yorker contributor John Brooks went out of print in the 1970s. But after Warren Buffet loaned it to Bill Gates—who publicly called it his favorite business book—it was reprinted in 2014 with an updated title: Business Adventures: Twelve Classic Tales from the World of Wall Street. It’s been wildly popular ever since.
What makes this book so special? Brooks provides detailed stories of 12 defining events in business history and makes them crackle with life and wit. He also reveals plenty of insider information on what went right—or terribly wrong—in each situation.
As entertaining as he is perceptive, Brooks delivers important insights we can all learn from. In fact, his tales are so enjoyable you may even find yourself turning them into educational conversations with your kids.
Although he’s writing about incidents from the 1950s and ‘60s, Brooks’ observations remain as relevant today as they were back then. As Bill Gates put it in a blog post about the book, “the rules for running a strong business and creating value haven’t changed.”
It was particularly fascinating to read about “The Fate of the Edsel,” a fresh take on Ford’s spectacular failure to listen to and communicate with their customers. It’s a cautionary tale for business leaders today, and at JJ Burns, the story’s lessons have been helping us communicate better with our own clients.
There’s also much to be learned from Brooks’ exploration of the seemingly invincible Xerox Corporation’s downfall, which was primarily due to a massive failure of vision and innovation. This story will resonate with our entrepreneur and executive clients. Continued innovation is essential to continued success.
You’d think such high-profile failures would never happen again. And yet, only recently, Kodak followed a very similar downward trajectory, going from undisputed industry leader to bankruptcy court—mainly because of misguided innovation and strategic management failures.
They say whoever is ignorant of the past is doomed to repeat it. In addition to being a delightful piece of writing, this book helps inoculate you against that ignorance.
Enjoy it like a vintage wine.
From Searing Pain to Soaring Purpose
Option B: Facing Adversity, Building Resilience, and Finding Joy
Before reading any further, stop. Write down the three things you are most grateful for in your life.
If you’re like most of us, your answers will be drawn from the following: health, family, relationships, and the fortunate circumstances life has afforded you. We often take these things for granted as we go about living our everyday lives.
But for Facebook’s COO Sheryl Sandberg, the ability to take such things for granted came to a crashing halt with her husband’s sudden and untimely death during a family vacation.
Her answer to this devastating loss was to write about it with help from her friend, psychologist and top-rated Wharton professor Adam Grant. The resulting book, Option B: Facing Adversity, Building Resilience, and Finding Joy, continues to climb bestseller lists around the country.
And for good reason. Both hopeful and heartbreaking, Sandberg’s book is a generous treasure trove of wisdom and inspiration. Her personal grief and isolation in the aftermath of losing her beloved husband is interwoven with many other stories of people triumphing over adversity. It’s a moving testament to the human spirit, as well as a practical guide to building resilience and recovering from life’s inevitable difficulties.
Sandberg rose above her own experience to bring about workplace change. She recently helped enact a new policy at Facebook that gives employees 20 days of paid bereavement leave—which is two times more than the previous amount.
Using a devastating setback as a springboard to societal change may be out of reach for most of us, but this book will certainly inspire you to a deeper appreciation of all that you have. And it is a book you may find yourself returning to the next time life sweeps away your Option A and leaves you to make the most of Option B.
Navigating Difficult Times
As financial advisors, we’re frequently called upon when clients are going through major life crises, many of which are as devastating as losing a loved one or a business. It’s our privilege to serve in these situations. Our concern goes way beyond simply answering the question, “do I have enough money or resources to get through this?”
While we can’t ease the emotional pain of loss, we can ensure that no additional suffering occurs because of insufficient planning. Making sure you’re prepared for the unexpected is one of the most important things we do.
It’s also one reason we’re very proud of our vocation. We have the opportunity every day to make a difference, to help ease life’s burdens, to provide a safety net when life’s inevitable tragedies occur—and just as importantly, to help families like yours live life to the fullest in the good times.
We consider you, our clients, to be part of the JJ Burns family. We’re here to help with whatever you need.
As a kid, you waited all year for summer. It was the time in which getting up early, going to school, doing homework and taking tests, ceased to exist.
Of course, now that we are adults, we don’t get the summer off—nor do our finances.
Cash flow and tax planning play a part in our financial plans for the year. However, with the summer vacation months, those plans can sometimes fall off track.
Keep reading to find out how you can avoid a sharp summer’s hit to your finances, and still maintain a work/life balance that can help you further enjoy the mid-year vacation months.
Know Your Cash Flow
Within reason, your finances shouldn’t get in the way of your enjoyment of the summer vacation months.
Even if you have mortgage and car payment obligations in addition to adhering to your year-long financial plan, this doesn’t mean you can’t have some fun in the summer sun.
Check out your cash flow to see what you can afford to do with your family this summer. Make sure what you plan to spend does not affect your emergency fund (which should be six months’ worth of your yearly salary).
Plan Your Taxes
Next, see if your taxes are in order. For instance, are all your taxes paid? If you’re self-employed, have you made the correct estimated tax payments? Look into what you might owe federally or to the state where you live. Make it a point to also verify your property tax is paid.
Plan ahead for your deductions and credits before the tax year ends. You can maximize your deductions by making charitable donations, contributions to qualifying retirement accounts, or deposits to your health savings account (HSA). Consult your wealth manager for the maximum amounts you can contribute to avoid a tax penalty. Also, be sure to keep good records to make the tax filing process easier.
Introduce Your Kids to Finance
It’s never too early to teach your kids about finance, and summer can be your perfect opportunity to teach them financial value and responsibility.
For instance, for your younger ones, consider giving them a set amount of money for the summer, and then teach them how to budget to make the most of their money until the start of school. Suggest that they perform small odd jobs around the house, such as cleaning the yard or washing the family cars to make money that can further supplement their summer savings.
Your older kids can also learn financial life-long lessons this summer by becoming more independent. For instance, let them grocery shop or cook for themselves as well as their friends instead of going out to a potentially expensive lunch or dinner.
If your son or daughter drive to a job or paid internship this summer, encourage them to pay their fuel expenses, and of course auto insurance. Doing so will help them understand the importance of keeping up with not just their financial responsibilities, but also their real-world responsibilities.
Give your older kids other ideas to help build their financial independence. If your son or daughter has plans to attend music festivals or take summer weekend trips with friends, encourage them to work, save toward their goals. Paying for their own recreation or time away from home can have a monumental financial impression on them that could last a lifetime.
Vacation Within Reason
Okay, so maybe this summer you don’t feel like spending thousands of dollars on that villa in Tuscany. That doesn’t mean you can’t enjoy the summer months while being a bit closer to home.
If the beach or the mountains are near, spend a couple weekends this summer playing in the waves or staring at the majestic high-altitude views. Doing so will be much more cost effective than going on an expensive vacation, especially abroad.
Also, for the fun of it, check out your local paper’s real estate section to find out if any timeshare resorts near you might be offering free weekend stays. If all you have to do in return is attend a seminar for potential timeshare buyers, the cost might be worth it.
Celebrate Smart, Particularly with Summer Weddings
All of us know weddings are expensive, particularly with some nuptials rising into the tens of thousands of dollars.
If someone in your household is getting married this summer, try to be fiscally responsible in spite of the fact that this is a special once-in-a-lifetime event for you, your son or daughter.
For instance, with weddings, budget experts suggest the event not be held on Saturday, but instead on a Sunday, or any other day of the week. Many hotels and resorts charge more for Saturday weddings as opposed to other days of the week.
Try to get married at the end of the season. You can save a good amount if yours’ or your son or daughter’s wedding is held in late August or September, as opposed to June or July.
Budget experts and wedding savers also suggest that you find a venue that doesn’t require you to use “in-house” vendors. Try to find a marriage and/or reception location where you can bring your own catering.
Additional savings can also be realized if the wedding and reception are held in the same location.
A Better Work/Life Balance
Summer is when we recharge ourselves, start new, and strengthen up for the remaining six months of the year.
In order to make the most of your summer, it's important to have a written plan of what you want to accomplish. Keep track of your finances, your taxes as well as any additional expenses this summer, such as a wedding or travel, and you’ll have a better chance to enjoy some quality down time without breaking the bank.
If anything, your work/life balance deserves it.