​Holiday greetings again, everyone!  Before all your families arrive in a week or so, and your households rival the Griswolds' in "Christmas Vacation" - though, gosh, I hope not! - I want to pass on a few year-end ideas that perhaps you haven't heard before or at least recently.  Of course, if you're already up to speed about these tidbits from years gone by, then that's what the "delete" button is for.  On the other hand, these messages go out to almost 1,000 of you and it's hard to keep track of when each of you came or went from this esteemed group. 

First off, I'm sure you're all aware that we can each give up to $19,000 to each of our family members (or lucky friends) each year, and that a married couple of any gender persuasion can double that amount even if only one of them is actually coming up with the funds to do so - that's up to $38,000 per recipient if my math is still reliable.  This is called the annual gift tax exclusion and it will remain at that level in 2026.

In addition, though, each of us has a lifetime gift and estate tax exemption of $15,000,000 (that's no typo), so a married couple has a total of $30,000,000 to work with for lifetime gifts and/or estate tax values.  If you're worried that this may not be enough to cover your potential tax liability, then congratulations!  For most of us, though, this should allow for as liberal gifting and generosity as we're likely to need.  The way it works is that if our annual exclusion gifts to anyone exceed $19,000 (or $38,000 for marrieds) per recipient, we'll just be using up a portion of our lifetime $15M, and we'll need to file an IRS Form 709 to report those excess gifts.  We don't pay any tax, however; the return is solely to allow the IRS to keep track of how much of our lifetime exemption we've use and how much is left for future gifts or for our estates to claim when that time comes.  

But there are more gifting goodies available, as well.  If we want to pay education (tuition, room & board, travel to and from home and school, etc.) or medical (also dental, optical, therapeutic, etc.) expenses for our favored recipients, we can do so in any amounts without using up any portion of our annual exclusions or lifetime exemptions.  We just need to make sure those payments are made directly to the providers of those services and not to the personal recipients themselves.  No return is even required to report those amounts, though we should certainly keep track of the payments in case we have to prove whether we only paid for legitimate purposes).  Check the IRS website if there's uncertainty about a particular payment (irs.gov).

And finally, if we can't (or aren't inclined to) make a flat-out gift of our funds (because perhaps we'll need them ourselves someday), how about a low-interest loan to a family member, say, for a down payment on a house or to avoid the need for higher-interest education loans that may take years to repay?  After all, the current age for a Gen Zer to be able to buy a house is now about 40 and some people are still paying off student loans they took out 30 years ago.  Just watch Jimmy Stewart's impassioned plea to Old Man Potter in "It's a Wonderful Life" and you'll know what I'm talking about.  Such loans need to be properly documented, of course, but they can be fully or partially forgiven (as gifts in another year) if that becomes an affordable alternative later on.

So, although I often harp on charitable giving this time of year - many of those organizations are like our starving-artist kids after all - charity does begin at home, I've heard.  

That's all for now, I guess, although I'll also reaffirm not to make unwarranted gifts - they're also called scams - to people and organizations you don't know and wouldn't benefit if you did.  Artificial intelligence may be a wonderful concept in many applications, but it's making many scammy solicitations look like the real thing, and if we're not sure about them, then we need to get help before the damage is done and the checkbook is empty.

On that happy note, I'll compensate by wishing you a wonderful time with your families and friends, including a better year for all of us here and around the world who really need it in 2026.

​Crispy Fall greetings, everyone!  It's been a while since I've written, so lest you completely forget me and I end up in your spam folder, I want to reconnect and offer some timely advice about those pesky required minimum distributions from retirement accounts (RMDs) that some of us have to deal with this time of year.

First, though, I need to digress and give you something else worth thinking about that can be a trap for the unwary:  If you or others you know are assuming that you/they don't need a will or trust if all the assets are in joint ownership with someone else (like a residence or bank accounts) or have designated beneficiaries (like IRAs or life insurance) - and that because of those arrangements, the assets won't require probate administration and can't be called upon to pay off a decedent's obligations and end-of-life expenses - you/they are seriously mistaken and could be blindsided if not careful.  

That is, if all those assets pass automatically and quickly to others at someone's death - great result, for sure - the assets are by no means exempt from the obligations and expenses I mentioned.  So, if you are a recipient of one of those automatic transfers on death, it will behoove you to make sure that all the decedent's obligations have been satisfied or you could be called upon to return at least a portion of what you've received, in order to satisfy those obligations.  'Nuf said here about that, but please let me know if you have questions about what I've just described.

OK, let's talk RMD strategies.  You'll know who you are if you have this issue to contend with, so I won't bother with the basics.  The problem is that if you just receive a check for whatever that annual amount turns out to be, you're going to pay regular income tax on it unless you take steps to at least soften the blow.  Here are a few of those you might consider.

Probably the lowest hanging fruit is simply to have your IRA administrator make charitable contributions directly from the account to your favorite non-profits - the Peterborough Players is always high on my list - 'cause every dollar that goes to them is one you don't have to include on your IRS return.  Sure, there are limits on these direct payment benefits, but most of us don't have to worry about exceeding them, and even so, I'm not sure whether there's anyone left at the IRS to keep track.

Other possibilities for reducing the tax bite on RMDs is to use the funds to pay for things that are tax-deductible.  So, you could pay your year-end real estate taxes with the funds or prepay interest on a mortgage balance you still owe, or even pay a long-term care policy premium, all of which are deductible and might give you a greater benefit than taking just the standard deduction you've always used. 

Other tactics you might consider are to deposit the RMD back into the account, so the non-taxable portion will start growing again on a tax-deferred basis.  

Likewise, if you have grandchildren and want to help them avoid years of repaying student loans, you might contribute the net RMD funds to so-called "529" accounts for them, and the funds in those accounts will also grow taxed-deferred - even never taxed if the payouts are used to pay for tuition, books, room and board, and other education-related expenses for the young Einsteins.

Finally - and this one is more cutting-edge but perhaps worth a look - you can investigate what's known as a "qualified longevity annuity contract", or QLAC in gov-speak parlance.  This is a kind of annuity you can buy with up to $200,000 (per spouse) from the accounts where RMDs are required and then defer taking payments from the annuity until age 85.  So, that much would no longer be included in calculating your RMD and you wouldn't have to pay tax on the annuity payments until you started taking them.  Of course, you need to make sure the company you buy the annuity from will still be around at that point, but that's a risk anyone who buys life insurance is also taking, and you need to be clear about what happens with the annuity balance if you pass on before you start taking the payments.  You'd certainly want it to go to your designated beneficiaries.  Like lots of insurance plans, there are bells and whistles to consider, so do your homework before making a decision.

And, of course, the most advantageous option from a non-tax standpoint would be to take that RMD and book a nice trip somewhere to enjoy the fruits of all those years contributing to the account.  We just got back from a week hiking in Sicily with our kids and the value of an experience like that is priceless.  Now I'm thinking about Spring training in Fort Myers, but I'm not yet ready to broach that at home.

There's just so much going on during the weeks leading up to the holidays that it's hard to see your way through.  One important task, though, is to try to help out those organizations that depend on us for their very survival - and I'm not talking about the stores at the mall on Black Friday.  I mean the local food banks, daycare centers, hospice and healthcare facilities, as well as our favorite cultural places that make living here so rewarding.  All you have to do is visit nearly anyplace else, and you come home appreciating what a bonanza of riches we have here - and too often take for granted.  
 
So amid all the holiday cards and parties, and the double-checking of your naughty/nice lists, here are a couple of ideas you might post on the fridge where you'll see them each time you top off your eggnog.
 
Even though your bank balance may also be stressed out these days, most organizations will let you use plastic to make your contributions.  That way, you can get your deduction this year and take until MLK Day (OK Easter) to pay off the charge.  You'll probably also earn points you can use for your next trip to Bermuda (OK Foxwoods).
  
If your investments have done well this year (if they haven't, you may want to put "interview new advisor" on your New Year resolutions list), you can toss a few shares of one of your big winners to a deserving organization, and you'll get credit (and a deduction) for the full current value without having to pay a nickel of capital gains tax on all the appreciation.  
 
Even if you don't have financial resources to spare, you can thin out your closet and donate all those things you got last year and haven't worn, then take a deduction for their reasonable value.  Believe me, I see lots of people every day who could use your outgrown winter coat or the ones your kids would no longer be caught dead wearing.  Just consult the NH Charitable Foundation's website for how to document those contributions and ensure the write-offs.

Finally, how often do we feel like we have to come up with a little something for people who really don't need anything at all from us - maybe our in-laws or the party hosts who already have enough banana bread?  Instead, why not make a contribution to an organization you know they value?  They won't have to re-gift what you give them and they'll probably be impressed that you took the time to give the situation some real thought.

There are lots of other ideas, too - like a $2 weekly payroll deduction to the United Way - but if you're considering more upscale concepts like donor-advised funds, charitable gift annuities or remainder trusts, let me know.  I can help with those, too.  These ideas are just the low-hanging fruit of generosity.  The key consideration is that no gift is too little to small, struggling organizations that depend on each and every dollar they receive.  Just make sure you think about that before you have an epiphany on New Year's Day and have to wait another year for the deduction.


Posted 12/05/2014 - Tax Planning

Like it or not, your town's real estate tax bills will be arriving soon.  So, as you grit your teeth and start mumbling about why we need so many police cruisers and school desks, I'll try to divert your attention with answers to some commonly-asked questions about how the local tax process works in New Hampshire.

First of all, being the non-conformists we are, New Hampshire real estate taxes are based on an April 1 to March 31 year.  Just think of it as a "mud season" tax year and you'll be able to remember those dates. The first tax bills usually arrive about June 1, for payment within 30 days, but no one knows what the real taxes will be at that point, so those first installments are half of the total you paid last year. The final tax rates aren't set until the Fall, so the second half bills that arrive in November, for payment in December, make the necessary adjustments to what was paid the first time around.  If taxes increase a bit each year, as they tend to do (say, because the town needs a new cruiser), then the second half bill will be a little more than the first installment.
 
Alright, so what if the assessment of your property is just way more than you think it should be; what can you do about it?  Well, the first thing to do is to check the town's information about your homestead to make sure it's accurate - one estimate I received is that as many as two-thirds of properties have assessments based on factual errors that could be costing you serious money.  I mean, If they've got you down for 4 bedrooms and 3 baths, but you only have 3 and 2, then you need that error corrected in order to pay what you should.  But you won't see that information on your tax bill itself.  You either need to march down to the tax collector's office, or check the records online if your town makes the information available that way. In Peterborough those records can be accessed from the town's website, or you can call Leo Smith in the tax office at 924-8000, ext. 132.   

Then, what other factors affect your overall assessment?   Well, I'm sorry to inform you that if you work really hard to keep your home freshly painted and nicely landscaped. you're not only going to be thanked by your neighbors, but also by the tax collector, because those efforts are likely to be rewarded with a higher assessment than if you let all the weeds grow and the paint flake off.  Also, if you cut some trees so you can see Mount Monadnock or get a nice view of the Contoocook, your assessment will surely be inflated for those breath-taking intangibles, too.  Likewise, if the inside of your home looks like a recent shoot for Architectural Digest instead of a hoarder's hovel, you'll get bonus points on your assessment for those efforts, as well.  That all makes sense, though, because you'd get more for your place on the open market, too, and fair market value is what the assessor is going for.
 
People also wonder about the impact of additions and improvements.  If you pull a building permit for a $10,000 kitchen overhaul, that won't necessarily add $10,000 to the total value.  The assessor will come out to take a look, and the decision will be based primarily on the square footage involved and the quality of the workmanship and components rather than what you wrote on the permit application.  Additions of bedrooms or bathrooms seem to impact assessments the most, as they probably would the selling price.  If it's any consolation, the assessors do have tables and charts for these determinations, so they're not just ballparking it.
 
OK, after all that, what if the bottom line is that you think your assessment is still way too high?  The key thing to remember is that it's not the total value that matters; it's how that total compares to what the assessors think about properties comparable to yours.  If they're coming up with the same approximate values for your friends' estates of the same size and condition, also with bonus features like views, and tucked into quiet leafy neighborhoods, then you're probably all in the same expensive tax boat.  If your pals seem to be getting preferential treatment, however, then you need to marshall your facts and get your abatement application on file with the town by March 1 - or you'll just have to grumble, write that big check, and wait another year.


Posted 05/23/2014 - Tax Planning