The top tax rate for dividends and long-term capital gains taxes is
15%.
FALSE. The computation of the Alternative Minimum Tax (AMT) puts some
taxpayers into what is known as the “phase out zone” where some deductions are
reduced in value. For these taxpayers, the effective long-term capital gains
rate may be as high as 22%. Charitable Solution. Prior to their
sale, gifts of appreciated assets yield an income tax charitable deduction for
the current fair market value of the asset and completely eliminate long-term
capital gains tax liability.
Tax-Exempt income (from municipal bonds, for example) is never subject to
income tax.
FALSE. Income reported on line 8(b) is excluded
from determining one’s adjusted gross income. However, if you have social
security income, tax-exempt income is included in determining whether you owe tax on
social security income. Charitable Solution. A charitable gift annuity
provides annual annuity payments to the donor, a portion of which is tax
exempt. The tax-exempt portion is never included in any tax
calculation.
If my standard deduction is greater than the amount of my itemized
deductions, I should always take the standard deduction.
FALSE. You
should run your
taxes using both standard and itemized deductions. Although the standard deduction
will be better using standard tax calculations, the preserved itemized
deductions may actually lower the Alternative Minimum Tax. Charitable Solution.
Unlike some itemized deductions, charitable gifts are deductible under both
standard tax and AMT calculations. Therefore, even where other deductions are
not helpful under the AMT, charitable deductions continue to reduce your tax
liability.
Itemized deductions are only available for the year in which the deduction
occurred.
FALSE. Most, but not all, Schedule A deductions are “use it or
lose it,” meaning they are only deductible in the year they are incurred.
Charitable Solution.
Charitable gifts that exceed thresholds related to adjusted gross income may
be carried forward for an additional five years.
You cannot deduct personal expenses related to charitable giving.
FALSE. It is true that you may not deduct the value of your time. However…
Charitable Solution. Expenses directly related to
performing charitable services are often deductible. For example, driving
expenses in connection with volunteering are deductible at 14 cents per
mile.
You cannot take a charitable deduction for assets you continue to use.
FALSE. There are exceptions to the general rule is that you must actually
part with possession of assets to get a deduction. Charitable
Solutions:
You may give your home (and some other kinds of real estate) to
charity with a reserved life estate. You get an immediate income tax
charitable deduction and continue to live there the rest of your
life.
You may take out a charitable gift annuity that provides an
immediate income tax deduction and provides annuity payments to you (and your
spouse) for life.
You may establish a charitable remainder trust that provides an
immediate income tax deduction and provides income either at a set or variable
rate for either a term of years or for your life (and that of others).
