In This Issue
Featured Article
Start Your 2014 Tax Return Now
Curt's Quick Comment
Family Foundations
From the Financial Presses
Quick Links
Featured Article
I was involved in the first Foundation for Financial Planning Wounded Warrior outreach program.  Two other advisors and I met with about eight veterans from Walter Reed.  We provided them some initial information and offered our services Pro Bono.  Hopefully the program, conducted in coordination with the Yellow Ribbon Foundation,  will continue to grow.
 
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Financial Strategies
Planning Techniques, Procedures and Guidance for Military Professionals
Greetings!

Welcome to the May edition of Financial Strategies.  I hope you enjoyed tax season as much as I did.  O.K. let's be realistic.  Most of us don't enjoy paying taxes.  But, if you wait until next January to worry about your taxes, it is too late.  My first article talks about the fact that you need to start worrying about your 2014 taxes now.

Charitable contributions are one of the ways many of us reduce our taxes (even if that wasn't our primary reason for giving).  This month's second article talks about the use of family foundations to accelerate tax benefits and help charities.

The two articles from the financial presses also talk about taxes (what can I say, it has been tax season).  The first covers taxation of retirement benefits...something we all need to be aware of and the second covers DINGs, WINGs and NINGs.

I think Spring is finally here and it is nice to see some green.  Enjoy your May!

Curt
Curtis L. Sheldon, CFP, EA, AIF
C.L. Sheldon & Company, LLC
(703)542-4000 or (800) 928-1820
Time to Start Preparing Your 2014 Tax Return

Form 1040 Back when I was a Lieutenant (shortly after the earth cooled), I heard the following statement the first of many times from a supervisor or commander. "You write your own OPR (Officer Performance Report...actually back then it was an OER Officer Evaluation Report), so start writing." Now, my boss wasn't literally telling me to write my OPR. He was telling me that the work I did would write my OPR. In the same vein, you have already filled out 1/3 of your 2014 tax return. Once December 31st rolls around there is very little you can do to change the tax bill you owe. Even "last minute" tax strategies have limited utility. The time to start filling out your tax return is now. So, what can you do?

  • 401(k), TSP, 403(b). If you have an employer sponsored plan such as a 401(k) at work contribute as much as you can to it. For every dollar you contribute to a 401(k) you reduce your tax bill by 25 cents (assuming a 25% marginal tax bracket). And not only do you reduce your tax bill you reduce your Adjusted Gross Income (AGI) which controls other deductions like medical deductions, miscellaneous expenses deduction, and education credits and deductions. If you don't have access to an employer sponsored plan, contribute to a traditional IRA. While you can't contribute as much to an IRA as an employer sponsored plan, you still will reduce your tax bill.

  • Shift assets to take advantage of lower tax rates. If you have set aside assets for a specific purpose for you children (or anyone else for that matter) you may be able to transfer the taxes on those assets to them and if their tax bracket is low enough you may eliminate the taxes all together. For example, let's say you have 100 shares of XYZ stock that you bought more than one year ago for your child's college education. If you sell the stock you will pay taxes on the Capital Gain (most likely at 15%). If you gift the shares to the child and the child has little or no other income, then the tax bill may be 0. Just beware the kiddie tax though...

  • Gift assets to Charity. This one builds on the example above. If you gift an asset that you have held for more than one year to a qualified charity you get to deduct the Fair Market Value (FMV) on the date of the gift. You get the deduction of the full value but you never recognize the gain on the asset. You in effect transfer the gain and associated tax to the charity and since the charity is tax exempt, taxes are never paid. You can replace the asset immediately (virtually) and never pay taxes on the gain you transferred to the charity 

  • Consider tax shelters.  Notice I said "Consider".  Some investments have tax advantages and can shelter income from taxation or maybe even provide a tax deduction or credit.  Classic tax shelters that are still available include (remember, I'm not recommending that you should invest in these shelters)...

  • Direct ownership of Rental Real Estate or Real Estate Limited Partnerships
  • Oil and gas Limited Partnerships
  • Low-income Housing
  • Historic Housing/Buildings

Just like I provided inputs to my supervisor for my OPR when it actually came time to write it, it is time to start working with your advisor to complete this year's tax return.  You've already completed 1/3 of it...time to work on the rest.

 

Curt's Quick Comment
A recent White Paper produced by Vanguard states that Investment Advisors can add 3% to the return earned by Individual Investors earn on their own.  Read more here.
Family Foundations:
Building a Rich Philanthropic Legacy

 

If charity is important to you and you want to build a philanthropic legacy, then starting a family foundation may prove beneficial. A family foundation can form a legacy of community involvement and responsible citizenship for generations to come.

 

What exactly is a family foundation? The Council on Foundations defines it as one whose funds are derived from members of a single family, in which the donor and/or the donor's relatives play a significant role in governing and/or managing the foundation throughout its life.

 

Family foundations, like the families who create them, come in all shapes and sizes, with equally diverse motivations, mission statements, and methods for pursuing their philanthropic objectives. In general, there are two types of family foundations: private foundations and supporting organizations.

  • A private foundation is the more flexible and controllable of the two entities. By establishing a fund into which charitable gifts can be placed, private foundations allow donors and other family members to take charitable deductions in the year contributions are made, without having to make an immediate decision regarding which charity or charities to support. Although private foundations maintain their own Board of Directors and control their own funding decisions, they have less attractive tax benefits than supporting organizations. In addition, the IRS requires private foundations to distribute a minimum of 5% of their assets each year and to pay an excise tax of 1% to 2% on their investment income.

  • Supporting organizations are neither required to pay an excise tax nor distribute 5% of their assets each year. But what they enjoy in enhanced IRS treatment, they sacrifice in terms of governance and grant making control. For instance, supporting organizations typically can distribute funds only to those charities the family designates in its charter when the foundation is established. Private foundations, on the other hand, can change beneficiaries at will. Furthermore, a supporting organization requires that donors relinquish full control over the organization's governance. In some cases, the majority of the organization's Board of Directors must be made up of members appointed by the charity or charities supported.

Special Tax Treatment

Gifts made to family foundations are generally deductible for income tax purposes. These deductions differ depending on the structure, the type of property contributed, and the donor's adjusted gross income (AGI).

 

Both the donor and the foundation avoid potentially steep capital gains taxes on appreciated assets, as long as the assets are used for the purposes for which the foundation was established. Perhaps most important to donors and their families, no estate or gift taxes are assessed against assets that have been transferred out of an estate into a foundation.

 

Special Considerations

Whether you are able to pursue a charitable agenda during your lifetime depends largely on your income needs and those of your dependents. While the tax deductions associated with most charitable giving reduce the cost of making charitable gifts, an individual's own needs will always be the determining factor. To address both goals, individuals may want to consider combining a family foundation with other charitable vehicles such as a charitable remainder trust or charitable lead trust. By so doing, you and your family may be able to enjoy an income stream during your lives, earn considerable tax savings, and maintain a significant degree of control over family assets -- all while fulfilling your charitable goals.

 

This communication is not intended to be legal or tax advice and should not be treated as such. Each individual's situation is different. You should contact your legal or tax professional to discuss your personal situation.

 

Required Attribution

  

 

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

 

2014 Wealth Management Systems Inc. All rights reserved.

 

From the Financial Presses

  

How Will Your Retirement Distributions Be Taxed?

 

Your retirement income likely will come from a variety of sources. For example, there're Social Security as well as brokerage accounts, employer-sponsored retirement plans, traditional and Roth IRAs, and tax-deferred annuities, among other possibilities. With so many choices at your disposal, you'll need to decide when to tap each of those sources, and taxes will be one key factor in making those decisions.  Read more here

 

Spelling Out Rules For DINGs, WINGs, And NINGs  

 

It's bad enough that you may have to contend with higher federal tax rates plus a new Medicare surtax. To compound the tax woes of upper-income investors, California, New York, and other states also impose a heavy state income tax burden. One way to mitigate the impact is through a nongrantor trust-and there are several kinds to consider. Options include three choices with rather distinctive acronyms: Delaware Incomplete gift Nongrantor Trusts (DINGs), Wyoming Incomplete gift Nongrantor Trusts (WINGs), and Nevada Incomplete gift Nongrantor Trusts (NINGs).  Read more here.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC 's current written disclosure statement discussing our advisory services and fees is available for review upon request.
 
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Military Professionals have unique financial benefits and unique financial needs.  If you think you would like some help developing your Financial Strategy please give us a call at (703) 542-4000 for a free initial consultation or for more information go to our website at .www.CLSheldon.com .