FINANCIAL FRIDAY: Tax Questions Answered!

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It’s Finance Friday! Bil Lako, CFP® answers your questions about the economy, taxes and your money. This week’s questions from Twitter:

Twitter Question: The new tax law does not allow for itemized deductions for charitable donations such as for church, veteran organizations, The Salvation Army, etc. Is there a way to claim these deductions on your taxable income for 2018?
First, this is not accurate. The new law does allow for charitable deductions. There was an initial proposal that would not have allowed for them to be deductible, but when it became a law that provision had been removed. Keep in mind, just because it is deductible does not mean you will get to use it. The Standard Deduction has been increased to $24,000 for married filing jointly.

So, if your itemized deductions do not add up to $24,000, then you will want to take that standard deduction as this will save you more in taxes.

Twitter Question: Why Don’t the Wealthy Pay Their Fair Share?
Are you serious with this question? I guess it depends on your definition of fair share. According to the Tax Foundation, the top 1% pays more than the bottom 95% combined. That’s right, combined! Is that fair? Also, according to the Tax Foundation, the top 1% paid a total of $542.64 billion of the $1.3 trillion taken in by the Treasury. That is more than 40% of the total taxes collected. Is that fair? Did you pay 40% of your income in the Treasury? I don’t think so.

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By the way, this does not include state taxes, local taxes, property taxes, FICA taxes, and sales tax. Again, I ask are you serious with this question? The problem with the government is not how much tax the wealthy pay but how much the government spends. I deal with this from my clients from time to time. It is generally not an income problem but rather a spending problem.

Twitter Question: How is Social Security Taxed?
This is truly an “it depends” answer. Social Security can be taxed from zero to 85% depending upon your Adjusted Gross Income (AGI). I would suggest you have your tax adviser run a quick projection to give you an idea.

Some food for thought: Do not take Social Security early if you are still planning to work and earn more than $13,000 annually. There is a penalty on top of the tax. Now if you are not going to have earned income, I would suggest you consider taking it early. Why? Most people say hold off until full retirement age or age 70 as the amount will be so much higher.

But remember, Social Security does not allow you to name a beneficiary. Therefore, if you waited until age 70 and you passed away the next day, you and your heirs would collect nothing. If you would have taken the benefits early, say age 62, you would have been collecting the funds for eight years. Those funds could have been saved to an account that could have passed to your heirs. Just something to consider.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, a financial advisory and wealth management firm that has been delivering comprehensive financial solutions to its individual, corporate, and institutional clients for 30 years. Mr. Lako is a Certified Financial Planner™ professional.

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