Finding your way through the new tax laws.

2018 will prove to be another great year for the Jewish Community Alliance as we are on track with new and expanded programs which serve all of those that have come to depend on us these past 30 years.  We understand that many have questions about how the new tax law may affect how we support these JCA programs.  For most of us the itemized or estate charitable tax deduction is not the reason we support the JCA.  Most support us because we continue to impact all lives here in Jacksonville.

 

However, those questions must still be answered.  Some are listed here:

  1. Will I still receive a charitable tax deduction for my gift (s) to the JCA? Yes.  The charitable tax deduction is retained in the new law.

It should be noted that charitable donations remain deductible under the new tax laws and the percentage limit for cash donations, by an individual taxpayer to public charities, has increased from 50% to 60%. 

  1. Will I still have to itemize my gift to the JCA on my tax return? For many, probably not and here is why:

The IRS has increased the standard deduction from $12,000 to $24,000 for married filing jointly.  In effect, the IRS is assuming that you will make charitable contributions and has allotted for that with the new law. 

  1. How have estate taxes changed? The gift tax, estate tax and generation skipping tax will continue.

The annual gift exclusion, that amount gifted to a relative or friend, in 2018 is $15,000 for an individual and $30,000 for a couple.  You may make a cash gift to your children or any relative, your friend or even work associates and this gift will be free from the estate tax of 40%.  Of course, this and all tax and financial considerations should first be reviewed by your financial advisor.

Estates which are processed in 2018 will be subject to an estate tax of 40% for amounts greater than $11.2 million for an individual and $22.4 million for couples.  Most estates are not large enough to take advantage of the estate tax thresholds (only one out of every 500 estates). For many years donors have left estate gifts to the JCA because they had committed to making meaningful changes through our programs.  We expect those motivations to go unchanged, even with the increased exemption amounts.

The generation skipping tax was enacted by Congress in 1932 to prevent individuals from avoiding the estate tax by transferring their wealth to grandchildren before they passed.  It is an exemption ($11.2 million for an individual and $22.4 million for couples) of the amount that may be directly transferred to grandchildren or into a generation-skipping trust for the benefit of grandchildren without incurring a federal generation-skipping transfer tax. The generation-skipping transfer tax does not just apply to grandchildren or other family members it also addresses gifts or transfers made to unrelated individuals who are at least 37 1/2 years younger than the donor. 

  1. How much will my estate taxable value be reduced by gifts to the JCA? Estates will still be entitled to an unlimited tax deduction for charitable gifts.

Under the new estate tax provisions, you are still able to deduct an unlimited amount for bequest gifts to the JCA.  This year the exemption amount has increased, however, historically the average bequest gift made to a non-profit has been $37,000, well under the exempt amount going back decades.  The estate tax exemption has been over $1 million dollars since 2002 and over $5 million dollars since 2010 so of our estate donors have made gifts to the JCA without having to take advantage of the charitable deduction. 

  1. Will I be able to transfer our assets to my spouse when I pass? The estate tax allows an unlimited deduction for transfers to a surviving spouse and to charity.

You may transfer your entire estate, un taxed, to your spouse upon death (provided they are or have become a U.S. citizen in the past 9 months from the time of passing) 

You should take into consideration “portability” of unused estate tax exemptions.  The Federal government allows a spouse to pass on the unused portion of the predeceased spouse’s estate tax exemption, if the predeceased spouse’s executor affirmatively elects portability on a timely filed tax return. The portability benefit takes into consideration that one should not be penalized for not planning.

  1. If I bequeath $15 million dollars to my daughter will she have to pay the taxes?

Regardless of size, the estate tax is not payable by the recipient.

  1. I have stocks that I purchased over 20 years ago and I am worried about the capital gains tax they will incur if I pass them on to my children.

The step up in basis in basis will continue in 2018.  This means that your stocks, purchased over 20 years ago, and have grown greatly in value are to be assessed at there value upon your passing – not at the value when you purchased them.

  1. With the new tax law and increased exemption amounts should I have a trust that provides asset protection?

Yes, and here is why.

A trust (living trust, irrevocable trust, etc.) is designed to protect an individual’s assets and their wishes for those assets.  Tax law and bequest intentions should be reviewed with an estate attorney to ensure that your wishes are carried out.

 

Contact Lior Spring, Director of Development, at lior.spring@jcajax.org or call 904-730-2100 ext. 318.

 

Basic provisions regarding the estate tax are:

  • The executor of an estate must file a federal estate tax return within nine months of a person’s passing if that person’s gross estate exceeds the exempt amount.
  • The estate tax applies to a decedent’s gross estate, which generally includes all the decedent’s assets, both financial (e.g., stocks, bonds, and mutual funds) and real estate (e.g., homes, land, and other tangible property). It also includes the decedent’s share of jointly owned assets and life insurance proceeds from policies* owned by the decedent.

*A POD of a life insurance policy may remove these assets from your estate, but you will want to discuss this with your financial planning expert.

  • The estate tax allows an unlimited deduction for transfers to a surviving spouse and to charity.
  • A credit effectively exempts a large portion of the estate: In 2018 any value of the estate over $11.2 million for an individual and $22.4 million for couples are generally taxed at 40%
  • Although tax rates are graduated, all transfers in excess of the exemption are taxed at the top rate, 40%, because the exemption exceeds the threshold at which the top rate applies.
  • The new law continues special provisions for family owned farms and closely held businesses. Estates which satisfy certain conditions may use a special formula to reduce the taxable amount of the estate and may extend payment of the assessed estate tax over a 14-year period at a special reduced interest rate.
  • Regardless of size, inheritances are not taxable income to the recipient.

Single 2018 Tax Brackets

Taxable Income Tax Bracket:
$0-$9,525 10%
$9,526-$38,700 12%
$38,701-$82,500 22%
$82,501-$157,500 24%
$157,501-$200,000 32%
$200,001-$500,000 35%
$500,001+ 37%

 

Married Filing Separately 2018 Tax Brackets

Taxable Income Marginal Tax Rate:
$0-$9,525 10%
$9,526-$38,700 12%
$38,701-$82,500 22%
$82,501-$157,500 24%
$157,501-$200,000 32%
$200,001-$300,000 35%
$300,001+ 37%

 

Head of Household 2018 Tax Brackets

Taxable Income Tax Bracket:
$0-$13,600 10%
$13,601-$51,800 12%
$51,801-$82,500 22%
$82,501-$157,500 24%
$157,501-$200,000 32%
$200,001-$500,000 35%
$500,001+ 37%

 

Married Filing Jointly 2018 Tax Brackets

Taxable Income Tax Bracket:
$0-$19,050 10%
$19,051-$77,400 12%
$77,401-$165,000 22%
$165,001-$315,000 24%
$315,001-$400,000 32%
$400,001-$600,000 35%
$600,001+ 37%

 

The Jewish Community Alliance staff and volunteers welcome the opportunity to continue this conversation about how the new tax law may shape your philanthropic investment of our mission.  In addition, we have a multitude of opportunities that you may wish to engage in that are designed to show you, today, how tomorrows investment will impact all of us.

 

Our promise to you:

We promise to always match your gift to your philanthropic investment in the JCA and always be good stewards of your trust and your gift.