Make the most of new rules for charitable giving

Most people no longer get a tax deduction when they donate to charity. That shouldn’t keep you from making donations, but you may want to change your approach.

Typically, only taxpayers who itemize deductions can write off charitable contributions. The vast majority of taxpayers instead take the standard deduction, which was nearly doubled by the Tax Cuts and Jobs Act of 2017. (Temporary provisions in pandemic relief legislation allowed taxpayers to deduct $300 of their donations in 2020 and 2021 without itemizing, but those provisions have expired.)

It has never made sense to donate solely to get a deduction. If you’re in the 22% federal tax bracket, for example, you save only 22 cents in taxes for each dollar you give away. If you’re charitably minded, however, there may still be ways to get a tax break for your generosity with some planning, or you could reconsider how you give money away. In my latest for the Associated Press, learn new rules for charitable giving.

This week’s money news

This week’s top story: Smart Money podcast on end of credit card rewards, and luxury credit cards. In other news: December mortgage rates, how high-interest ‘rent-a-bank’ loans sidestep state rate caps, and lifetime income.

Smart Money Podcast: The End of Credit Card Rewards, and When to Cancel Luxury Credit Cards
This week’s episode starts with a discussion about the potential end of credit card rewards.

December Mortgage Rates May Seek Calm After Turbulent Year
Interest rates on fixed-rate mortgages could stabilize or even drift lower in December.

How High-Interest ‘Rent-a-Bank’ Loans Sidestep State Rate Caps
Rent-a-bank loans are online loans that may charge triple-digit APRs in states that cap interest rates on small loans.

Save for ‘Retirement’? Generate Lifetime Income Instead
Money News & Moves: Also, Google pays for tracking us, and crypto isn’t broken.

Q&A: Claiming divorced spousal benefits

Dear Liz: My son is 59, and his ex-wife died approximately 12 years ago. She was a nurse and paid more into Social Security than he has. Is he entitled to her Social Security benefits as indicated in your article? How does he file and get more information? Must he wait until he is 62?

Answer: If their marriage lasted at least 10 years, he could begin divorced survivor benefits as early as age 60, or age 50 if he is disabled. (He can remarry at age 60 or later and still receive survivor benefits.)

Benefits are reduced if he applies before his full retirement age, which will be 67. Also, starting before full retirement age means the benefits are subject to the earnings test that withholds $1 in benefits for every $2 earned over a certain amount, which in 2023 will be $21,240.

If he earns too much to make starting early worthwhile, he could apply for divorced survivor benefits at age 67, when the earnings test goes away. His own retirement benefit could continue to grow until age 70, and he could switch at that point if his own benefit is larger.

But he’d be smart to consult a financial planner or use a Social Security strategy site, such as Maximize My Social Security or Social Security Solutions, to craft the best approach.

He can call Social Security’s toll free number at (800) 772-1213 for more information.

Q&A: Mom gave them her house before she died. Why that’s bad

Dear Liz: My mother gave her house to my brother and me in 2011 by quitclaim deed. My brother lived in the house with her until she passed in 2018, and he continues to live there. He wants to buy my half of the home, and I am wondering what my taxes may be because I am not purchasing another home with my proceeds. Since this was a gift, do these things apply? The home is valued at $500,000 so my half is worth $250,000.

Answer: Your tax bill will be based on what your mother paid for the home originally, plus any qualifying home improvements she made over the years. That is what’s known as the home’s tax basis, and it will be subtracted from the sale proceeds to determine your potentially taxable capital gain.

Let’s say your mother originally paid $100,000 for the house and remodeled the kitchen for $50,000, for a total basis of $150,000. When she gave you and your brother the house, you each received half of that basis, or $75,000. If your brother pays you $250,000, you would subtract $75,000 from those proceeds for a capital gain of $175,000.

The federal tax rate on capital gains ranges from 0% to 20% based on income, but most people pay 15%. If your state and city assess capital gains or other taxes, you’d owe those as well.

You don’t qualify for the home sale exclusion that allows many home sellers to avoid taxation on home sale profits up to $250,000. To get the exclusion, you must own and live in the home at least two of the previous five years.

It doesn’t matter that you don’t plan to buy another home; the tax law that allowed people to roll home sale profits into another home went away decades ago.

Your tax bill might have been substantially reduced if your mother had bequeathed the home to you and your brother, rather than giving it before her death. If she’d left it to you in a will or living trust, at her death the tax basis would have been “stepped up” to the home’s current fair market value.

If the home was worth $450,000 at her death, for example, you and your brother would have a tax basis of $225,000 each. If he paid you $250,000, your taxable gain would have been just $25,000.

You might be able to spread out the tax bill if your brother is willing to pay you over time rather than buy you out all at once, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

That would be one of several issues you should discuss with a tax pro before proceeding. A big capital gain can affect other aspects of your taxes and may require you to make estimated quarterly payments to avoid penalties for underpayment. A tax pro can advise you about what to expect and how to pay what you owe.

Holiday survival tips from 5 financial pros

For Ryan Decker, surviving the holiday shopping season is all about planning ahead. In fact, if he sees a gift for one of his two young sons in March, he’ll go ahead and buy it, instead of rushing through his shopping list in December.

“It very much eases the burden,” he says, making his December bills more manageable because he spreads holiday costs throughout the year.

Decker, a certified financial planner and director of the Center for Financial Literacy at North Central College in Naperville, Illinois, says that without that kind of advance planning, the costs this time of year can quickly overwhelm budgets. “Inflation is eating away at our purchase power, so once you throw in the holiday season, it’s a very stressful time.”

Financial educators like Decker are often busy during the holiday shopping season, sharing tips with their audiences about how to avoid debt and save money while still being festive. In Kimberly Palmer’s latest for the Associated Press, learn holiday survival tips from 5 financial pros.

This week’s money news

This week’s top story: 5 tax moves to consider before year-end. In other news: Wells Fargo could face over $1B in fines, 4 ways savings vaults can help you manage holiday spending, and when student loan payments resume.

5 Tax Moves to Consider Before Year-End
Careful tax planning can mean fewer surprises when it comes time to file. Here are a few tips to consider before the year winds down.

Wells Fargo, Back in the Hot Seat, Could Face Over $1B in Fines
The nation’s third-largest bank has for years been embroiled in investigations and ethical breaches.

4 Ways Savings Vaults Can Help You Manage Holiday Spending
With these mini accounts, you can organize your spending this holiday season without going over budget while also earning interest.

When Do Student Loan Payments Resume?
The White House has extended payment forbearance into 2023. With forgiveness in doubt, use this extra time wisely.

Q&A: Multiple payments may help credit scores

Dear Liz: You recently wrote that using more than a small percentage of your credit cards’ available limit can hurt your credit scores, even if you pay your balances in full. I pay my credit cards in full each month and I also make several payments (via my bank’s online payment service) during the month. Do these multiple payments hurt or help my credit score?

Answer: They probably help. The balance that matters for credit scoring purposes is the balance that’s reported to the credit bureaus, and that’s typically what you owe on your statement closing date. Making multiple payments before the statement closing date should lower that balance. Just remember to make a payment between the statement closing date and before the due date to avoid late fees.

Q&A: When an online shopping money-saving scheme is tax evasion

Dear Liz: My father lives in Washington state. He often purchases higher-priced items online, has them shipped to relatives living in Oregon and picks them up later. That way he doesn’t have to pay sales tax. Is this a form of tax evasion? Does he need to pay a “use tax”? Could he (and the Oregon relatives) possibly be in any kind of legal danger? He claims it’s perfectly fine to do this because Washingtonians “do it all the time” by driving down to Oregon to do their shopping.

Answer: Yes, people do this “all the time” but it’s still a form of tax evasion.

Washington and other states with sales taxes typically have laws requiring people to pay a use tax when they bring home goods purchased in another state that either doesn’t charge sales tax or charges less. People may also owe use taxes when they purchase something from an individual who doesn’t collect sales tax. An example might be furniture purchased from a Craigslist ad.

But these laws can be difficult to enforce. While businesses can be subject to sales and use tax audits, individual taxpayers are unlikely to face the same scrutiny.

Q&A: Divorce complicates retirement benefits

Dear Liz: I was told by Social Security that because I remarried at 60, I could still collect half of my ex’s benefits once he died. He has just died, and half of his benefit is greater than my own retirement benefit. My current husband has not started benefits. If I collect half of my ex’s benefit but want to later switch to collecting benefits on my current husband’s record (once he starts to collect) or to survivor benefits should he die before I do, can I do that?

Answer: The short answer is yes, although you’ve confused divorced spousal benefits with divorced survivor benefits.

While your ex was alive, you might have been eligible for a divorced spousal benefit if you had remained unmarried. That benefit would have been up to 50% of your ex’s primary insurance amount (the amount he would receive at his full retirement age).

The rules changed once your ex died. As a divorced survivor who remarried after age 60, you are entitled to up to 100% of what your ex was receiving. The survivor benefit will be reduced if you haven’t yet reached your full retirement age (which is currently between age 66 and 67).

Survivor benefits also offer more flexibility to switch later than other types of benefits. If you choose to begin receiving a surviving divorced spouse’s benefit now, you can switch to your own benefit at any point through age 70, if your benefit is higher, says William Meyer, founder of the Social Security Solutions claiming strategies site. You also can switch to receiving spousal benefits from your current spouse’s record once he starts collecting, if that benefit is greater than what you’re receiving from your former spouse’s record.

Figuring out the right way to claim can be tricky, so consider consulting an advisor or using claiming strategy software to determine what’s best in your situation.

How to take a career break

Back in 2016, Jamie Clark of Seattle was a software engineer who planned to take a year off of work to finish a master’s degree in computational linguistics. One year turned into three and a career change into financial planning.

Nowadays, Clark, who uses they/them pronouns, believes the experience makes them a better advisor – particularly since their career break didn’t turn out as originally planned.

“Part of our job as financial planners is to help people be prepared,” says Clark, now a certified financial planner who recently launched their own firm, Ruby Pebble Financial Planning. “And I want to help people build that flexibility.”

Career breaks are extended and usually unpaid stretches of time off work. Such breaks can be aspirational — giving you time to travel, pursue a degree, change careers or launch a business. Or, they can be prompted by life events, such as caring for a child, nursing a family member or dealing with an illness or burnout. In my latest for the Associated Press, learn some planning can help you make the most of your break.