That Donation You Make May Not Be Tax-Deductible

Unless you’ve completely turned off the news, you probably know that the tax code was significantly changed over the Holidays with the passage of the Tax Cuts and Jobs Act (TCJA).

There has been a lot of information out there on how some of the changes to the code will impact taxpayers differently depending on the state in which they reside. More on that at a later time, but for now, there is something in the code that will impact residents in all 50 states. If you give money to charity, or if you represent a charitable organization, then pay attention.

One of the by-products of the new code is that the number of taxpayers claiming itemized deductions will be reduced significantly. Currently, roughly 33% of taxpayers use itemized deductions on their returns. It is estimated that in 2018, that number will drop closer to 10%.

Standard Deduction vs Itemized Deductions:

Per the IRS, “When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit.”

Typically, taxpayers in states with income taxes and large real estate taxes tend to use itemized deductions. With the passage of the TCJA, the deduction for State and Local Taxes (SALT) will now be limited to a $10,000 deduction.

For example, let’s take a look at Jane and Judy:

Jane lives in Houston, TX, and her property taxes are $12,000 a year, she will now be limited to deducting $10,000 if she itemizes for the purposes of SALT.

Judy lives in Los Angeles, CA, and her property taxes are also $12,000 a year. In addition, since Judy lives in California, she also pays $5,000 a year in state income taxes. Prior to the TCJA, Judy was able to deduct $17,000 if she took itemized deductions. Now, Judy will be limited to a $10,000 deduction.

So how does this impact charitable donations?

Here is the link to the IRS Website:

In order for a taxpayer to deduct donations made to a qualified organization, a taxpayer must use itemized deductions.

If you find yourself still taking itemized deductions, then that charitable contribution you make may still be tax-deductible. However, if you find yourself switching to a standard deduction, that donation will no longer be tax-deductible.

If you are soliciting for donations, be careful, less people will be able to qualify for that deduction.

It is not all doom and gloom however. As part of the TCJA, most people should see their overall taxes go down which means they will have more money in their pocket. So if you are feeling charitable, you should have more money to give.

If you are a charitable person, consider planning ahead and talking to a qualified professional so that you can maximize benefits to both your charity as well as to yourself and your family.

SOFA Houston Press Release

Society for Financial Awareness





“A Non Profit Public Benefit Corporation”

1980 Post 0ak Blvd., Suite 1500 Houston, TX 77056
Tel: 281.968.1216


For Immediate Release

Houston, TX – June 5, 2017 – The Society for Financial Awareness (SOFA) is proud to announce that Avo Mavilian of Tailwind Financial Strategies, LLC has been named Chapter President for Houston, TX. Avo is an author, public speaker and an advocate for financial literacy.

SOFA is a nationwide nonprofit organization with the mission to end financial illiteracy across America, one community at a time. We are comprised of various financial professionals who volunteer a Pro Bono service to the community by providing various financial topics to companies, churches, and organizations in their geographic locale. Our Members are professionals such as Financial Advisors, Estate Planning Attorneys, Accountants, Realtors, Mortgage Brokers, Credit Counselors and Health & Wellness Practitioners.

Founded in 1993, we have had the opportunity and privilege to work with various prominent companies and organizations across America. Our educational financial outreach, and years of continued success, has provided us name recognition and a reputation of excellence.

As an organization we understand that discussing finances and financial blunders is something taboo and “off limits”. We are opening the door for this discussion to ensure that we are able to help all to find financial comfort!

The Society for Financial Awareness is a nationwide Non-Profit Educational Speaker’s Bureau that provides free financial workshops to companies, organizations, city and federal governments, places of worship, other non-profit organizations, and more. SOFA’s mission is to end financial illiteracy, one community at a time, by conducting financial education workshops across the country.

If you would like SOFA to host a FREE workshop at your company or organization, or if you would like more information about our organization visit or contact us at (800) 689-4851, or (281) 968-1216.

IRA Indirect Rollover Rule

According to a 2016 study by the Department of Labor1, the median number of years that the average employee between the ages of 55 to 64 had been with the same company was just over 10 years. For the entire working population, that number was only 4.2 years. Needless to say, it is no longer the norm that people work for the same company their entire lives.

With such turnover, and the disappearance of traditional pension plans in favor of employer sponsored plans such as a 401(k), 403(b) and others, the American worker has to now deal with rolling over funds from their retirement plans on a somewhat regular basis.

By way of a news release a few years back, the IRS announced that beginning on January 1, 2015, only one (1) indirect rollover per a 12-month period is permitted without a tax or penalty, regardless of the number of IRA accounts that you may have.

What is an Indirect Rollover?
When an owner takes a withdrawal from a tax-deferred plan and receives the funds personally and returns the funds to an IRA within 60 days. IRC § 408(d)(3)(B)

Sue decides to retire from her job and roll over funds from her 403(b) plan into an IRA. Sue decides that she wants the funds sent to her directly instead of a trustee-to-trustee transfer, and that she will deposit them in the IRA within the next 60 days. If she completes this task properly, then Sue will not face a tax or penalty.

Rollovers NOT Subject to the New Rule

  • Trustee-to-Trustee transfers of like accounts such as traditional IRA to traditional IRA
  • Direct rollovers that go institution to institution such as 401(k) to an IRA
  • Rollovers between qualified plans and IRAs

What We Learned From The Case
Perhaps the most interesting part of this rule comes from how it was derived. It was a result of a court decision in the case of Bobrow vs Commissioner. Since 1994, Publication 590, which is an IRS document, provided guidelines regarding the income tax treatment of distributions from IRAs. The court however contradicted the IRS guidance. In its ruling, the court ruled that the legislative history of the provision regarding indirect rollovers 408(d)(3)(B) did not intend to allow for multiple withdrawals contrary to Publication 590. In his decision, Tax Court Judge Joseph W. Nega said that the IRS published guidelines “is not binding precedent” and that “taxpayers rely on IRS guidance at their own peril.”

There are 3 takeaways from this ruling that are extremely important if you are contemplating transferring funds from retirement accounts. First, understand that there are rules that must be followed to avoid unintended consequences. Second, make sure to work with a qualified professional. Finally, this is a reminder back to civics class that the judicial branch (the courts) interpret laws, while the executive branch (IRS), is responsible for enforcing the laws.

Sometimes, 1031 Exchanges Aren’t A Good Idea

Like-Kind Exchanges, also know by their nicknames, 1031s and 1035s, are well-know strategies to defer taxes when selling an asset by quickly using the funds to buy a like-kind replacement property. To put it in simpler terms, properties that have appreciated in value can often be exchanged for other like-kind properties without being subjected to capital gains taxes that the IRS would otherwise require you to pay at that time.

What are 1031 and 1035 Exchanges?

The nicknames, 1031s and 1035s, have an interesting origin. They refer to Title 26 of the United States Code, Section 1031 – Exchange of property held for productive use or investment, and Section 1035 – Certain exchanges of insurance policies.   As an example, a person who has an apartment building as an investment will see the value of the property go up over time. That increase in value is called a capital gain. When you sell your property, the Capital Gains that have been building up over the years are taxed. However, if you sell your property and buy a similar asset within the rules of Section 1031, then you can avoid paying taxes at the time of those transactions. That lets you keep more money in your pocket so that you can buy a more valuable replacement property and keep your investment returns higher.

What Are The Benefits?

The most obvious benefit of the application of these exchanges is to defer taxes on the gains and to utilize the increased capital to further grow assets. For example, let’s assume that you purchased a rental property for $100,000 and sold it for $200,000. By following the rules of IRC1031, you could then re-deploy the entire $200,000 into a new rental property.   If you do not follow the rules, then the gain ($200,000 – $100,000 =$100,000), would be subject to immediate taxes.

Structuring Transactions Not To Meet IRC 1031

In some instances, it may be more beneficial to structure a transaction so that you intentionally skip the benefits of a 1031 using a strategy that takes a longer view of the horizon and what your family’s overall tax profile should look like. A few such long-term reasons to want to pay the tax immediately may be to increase your basis in the property in order to take greater depreciations or, from the family estate planning perspective, to transfer property to the next generation in a way that eliminates future capital gain increases from your estate.

As an example, assume you purchased a commercial property for $100,000 and with a current fair market value of $200,000. Assuming no adjustments, your basis on this property would be $100,000. If you exchange this property for another property, your basis that would carry over would still be $100,000. However, if you chose to realize the gains instead of an exchange, your new basis would be $200,000, and you could now take larger deductions for depreciation.


Tom bought an apartment building in 2011 for $200K, therefore his tax basis in the property is also $200K. Today that property is worth $500K. If Tom sold it today without using a 1031 Exchange, he would owe taxes on a built-in capital gain of $300K in the property [Selling Price $500K – Tax Basis $200K].

If Tom buys a like-kind replacement property within 180 days, he could defer the taxes that he would otherwise immediately owe. The downside though, is that Tom’s basis in the new property he bought would still be his old basis of $200K. That gets carried over from the old property as a requirement of a 1031. That way, if Tom sells this new property in the future, the IRS makes sure he would be on the hook for however much it went up in value since he bought the second building and ALSO for the taxes he should have paid when he sold the first building.

Often times, it is better to pay the taxes on the first sale so that you can take advantage of having a higher tax basis. By having a higher tax basis, you can help your kids out by giving them shares of property in a way that reduces your own estate taxes and also the capital gains taxes that will start racking up in the future.

Let’s also assume that Tom’s stock portfolio has some losses in it and Tom has another investment property that he is losing money on. By avoiding 1031, Tom is able to clean up his overall investment portfolio, since any taxes he would have had to pay on selling the building would be offset by the deductions that come from selling the loser investments in his portfolio.

Finally, if Tom anticipates that his income tax rates will rise in the future, he may want to lock in the lower taxes today instead of paying up when his tax rate is higher.


When considering the disposition of assets, especially when a replacement is being contemplated, it is imperative that you weigh the impact and consequences of taxes associated with the transaction both today and, more importantly, in the future.

2017 Income Tax Deadline

2017 Income Tax Deadline

2017 Income Tax DeadlineIt is that time of the year again when your mailbox starts getting filled with tax forms (officially known as Information Returns) from employers, brokerage accounts, banks and other places where you have financial activity.   If you are like most Americans, you probably have a pile of papers that you’ve put together that will be sent off to your tax preparer soon so they can prepare your returns.   As we get ready for this annual ritual, it would be a good time to remind ourselves of a few important tasks related to tax season.

Make Sure They Are Accurate

If you receive an information return such as a 1099-div, make sure to review the amount being reported to be accurate. If there is an error, it is your responsibility to contact the issuer to have them correct it. If you are unable to get it corrected, you will need to address it on your tax returns.   Remember, a copy of that return has already been sent to the IRS, so if they see a discrepancy, they will need an explanation.

Not All Information Returns Are For Taxable Income

In certain instances, you may receive an information return for a transaction that may not be taxable. For example, if you had a rollover, you may receive such a notice. Don’t ignore these returns. You still have to account for them, and also make sure they are accurate.

If You Don’t Get A 1099

You have a duty to report all your income whether your received an information return or not. As an example, if you were hired as an independent contractor where you earned income, and for whatever reason you did not receive a 1099 in the mail, it is your obligation to report that income on your tax returns. No EXCEPTIONS!

Check Your Social Security Statement Online

Identity theft is one of the fastest rising crimes today.   Thieves will often steal social security numbers to not only steal money, but in some cases to gain employment for undocumented persons.   One of the ways you can monitor this to make sure you are not a victim is by checking your social security statements. If you are getting close to retirement, the last thing you want to deal with is having your social security benefits held up.

Last Minute Tax Deductions

If you have not done proactive tax planning, then you may still have some opportunities for some last minute tax deductions for your 2016 returns. If you are still employed, the deadline to make contributions to IRAs is on Tuesday, April 18, 2017. This means that you can make eligible contributions that apply towards your 2016 tax liabilities.

Proactive Tax Planning

Unlike contributions to qualified plans, withdrawals made from qualified plans are generally accounted for in the calendar year. Nonetheless, tax season is a great time to get clarity on your income tax bracket for making tax-planning decisions. For example, if you find yourself in a favorable tax bracket, you may want to consider the impact of making withdrawals knowing the certainty of today’s tax rates vs the uncertainty of future tax legislation. Remember, when you reach age 70.5, you have to start taking Required Minimum Distributions from your qualified plans. If you wait until that time, your options will be severely limited from a planning perspective. This is a complex topic, and one where you should seek the guidance of a qualified professional.

Trump and Your Retirement Income

With the elections over and the Republicans in control of both the executive and legislative branches of government, it appears that tax reform will be one of the top priorities of the Trump administration.

While this subject covers a broad array of issues, we want to focus today on income taxes and what this means for your retirement.

As you know, when you reach the age of 70.5, you will have to start taking required minimum distributions from your qualified plans. Some retirees start taking distributions much earlier either by choice or by circumstance. At the time of distribution, you will be taxed at your then income tax rate on the amount of the withdrawn amount.

Currently, there are 7 income tax brackets for federal tax purposes. Under the Trump proposal, this would be simplified down to three (3).

Proposed Trump Income Tax Bracket

Let’s take a look at our client Jane. Jane is single, 60 years of age, and currently has income of $100,000. Jane wants to withdraw $50,000 from her IRA to purchase a retirement home. Under the current plan, the $50,000 withdrawal would be taxed at 28%, or a tax of $14,000 leaving her $36,000. So if Jane wanted $50,000 net of taxes, she would have to withdraw $69,444. ($69,444 – ($69,444 * .28) = $50,000

Under the proposed brackets, should Jane decide to withdraw $50,000 she would be taxed as follows. ($12,500 at 25%) =$3,125 + ($37,500 at 33%) =$12,375 for a total tax of $15,500. This would leave Jane net proceeds of $34,500. In this scenario, if Jane wanted $50,000 net of taxes, she would have to withdraw $73,135. ($12,500 – ($12,500*.25) + $60,635 – ($60,635 * .33) = $50,000

While it appears that under the proposed new tax rates Jane would be paying more taxes, we need to look at the first $100,000 to truly make apples to apples comparison.


As you can see, the first $100K under the proposed Trump plan has lower taxes.
Let’s now add the additional 50K withdrawal to see how they compare.



A word of caution: The exercise above assumes that the only changes are the tax brackets themselves. There are other proposals such as child credits, deductions and other variables that may impact what is considered taxable income. We will not know the full impact until legislation is passed and regulations are published.

Bottom Line:
If you are thinking about making withdrawals from your qualified plans, you have the option of certainty over the next few months, or you can take a wait and see approach. In our situation above, the difference in total taxes seem modest, however, under the proposed scenario it appears that you would be required to liquidate a larger amount of your retirement account which would deplete it faster. From a planning perspective, focusing on things that you can control may give you the peace of mind you desire.

As always, financial decisions should not be made in a vacuum and you should look at your overall situation before making any decisions as they may have consequences elsewhere.