Smith,Bookkeeping Financial Services LLC

Example: DAF Tax Savings Using Appreciated Stock

Facts

Filing status: Married Filing Jointly

Federal tax bracket: 32%

Capital gains rate: 15%

State tax: ignored for simplicity

Charitable intent: $100,000

Asset owned

Stock purchased for $30,000

Current value: $100,000

Unrealized gain: $70,000




❌ Option 1: Sell Stock → Donate Cash

Step 1: Sell the stock

Capital gains tax:
$70,000 × 15% = $10,500

Step 2: Donate cash to charity

Cash available after tax:
$100,000 − $10,500 = $89,500

Step 3: Charitable tax deduction

Deduction: $89,500

Income tax savings:
$89,500 × 32% = $28,640

✅ Net tax benefit

Income tax savings: $28,640

Capital gains tax paid: ($10,500)

Net tax benefit: $18,140




✅ Option 2: Donate Stock to a DAF (Best Option)

Step 1: Contribute stock directly to DAF

✅ No capital gains tax

✅ DAF sells stock tax‑free

Step 2: Charitable deduction

Deduction based on full fair market value

Deduction: $100,000

Income tax savings:
$100,000 × 32% = $32,000

✅ Net tax benefit

Income tax savings: $32,000

Capital gains tax paid: $0

Net tax benefit: $32,000

🔥 Side‑by‑Side Comparison

Strategy

Income Tax Savings

Capital Gains Tax

Net Benefit

Sell & Donate Cash

$28,640

($10,500)

$18,140

Donate to DAF

$32,000

$0

$32,000

✅ Extra tax savings using a DAF: $13,860

Benefits of a Roth IRA for Children

Tax-Free Growth

Contributions grow tax-free, and qualified withdrawals in retirement are also tax-free. [investopedia.com]

Compound Interest Over Decades

Starting early allows decades of compounding, potentially turning small contributions into large retirement savings. [legalunite...states.com]

Flexible Withdrawals

Contributions (not earnings) can be withdrawn anytime without penalties, making it useful for emergencies or education. [fool.com]

Financial Education

Teaches kids about saving, investing, and long-term planning. [forbes.com]

Generational Wealth Building

A Roth IRA can be part of a broader strategy to build and transfer wealth across generations. [legalunite...states.com]





✅ Requirements to Open a Roth IRA for a Child

Earned Income Is Required

The child must have earned income (e.g., wages from a job, self-employment like babysitting or lawn care). [fidelity.com]

Custodial Account

A parent or guardian must open a custodial Roth IRA and manage it until the child reaches the age of majority (usually 18 or 21). [forbes.com]

Contribution Limits

For 2025, the maximum contribution is $7,000 or the child’s total earned income for the year—whichever is less. [fidelity.com]

Fidelity Investments - Retirement Plans, Investing, Brokerage, Wealth Management, Financial Planning and Advice, Online Trading. Fidelity Investments is a financial services company that helps customers plan and achieve their most important financial goals. We offer a wide range of financial products and services for individuals and businesses, including trading & investing, retirement, spending & saving, and wealth m...

What is Cost Segregation?

Cost segregation is an IRS-approved method of identifying and reclassifying components of a property into shorter depreciation lives. Instead of depreciating the entire building over 27.5 years (residential) or 39 years (commercial), certain assets can be depreciated over 5, 7, or 15 years.




✅ Tax Advantages







Accelerated Depreciation




Items like flooring, cabinetry, appliances, and certain electrical/plumbing components can be depreciated faster.

This front-loads deductions, reducing taxable income in the early years.










Immediate Cash Flow Benefits




Lower taxable income means lower taxes, freeing up cash for reinvestment or debt reduction.










Bonus Depreciation




Under current tax law (as of 2024), qualifying assets with a life of 20 years or less can take bonus depreciation (though phased down from 100% to 60% in 2024 and continuing to phase out).

This can allow a large first-year deduction.

Tax Advantages of an Irrevocable Trust

An irrevocable trust is a trust you generally cannot change or revoke once it’s funded. In exchange for giving up control, the tax code offers powerful advantages—especially for estate tax, income shifting, asset protection, and Medicaid planning.




1️⃣ Estate Tax Reduction (Biggest Advantage)

Assets transferred to a properly drafted irrevocable trust are usually removed from your taxable estate. That means future appreciation is not subject to federal estate tax when you die. [legalclarity.org], [suddenweal...ionlaw.com]

Federal estate tax applies only above the exemption (nearly $14 million per person in 2025).

Assets in an irrevocable trust grow outside the estate, preserving more wealth for heirs.

Common structures:

Irrevocable Life Insurance Trusts (ILITs)

Spousal Lifetime Access Trusts (SLATs)

✅ Best for: High‑net‑worth individuals and married couples doing advanced estate planning.




2️⃣ Income Tax Shifting to Lower‑Bracket Beneficiaries

An irrevocable trust can shift taxable income away from the grantor and toward beneficiaries who may be in lower tax brackets. [321trust.com], [taxsharkinc.com]

How it works:

The trust is usually a separate taxpayer and files Form 1041.

Income distributed to beneficiaries:

Is deductible by the trust

Is taxed to the beneficiary (via Schedule K‑1)

✅ Planning opportunity: Distribute income to adult children or others in lower brackets to reduce overall family tax.




3️⃣ Grantor Trust “Tax Burn” Strategy

Some irrevocable trusts are intentionally structured as grantor trusts for income tax purposes.

That means:

You (the grantor) pay the income tax

The trust assets grow tax‑free

This is actually a wealth‑transfer advantage, because paying the tax is not considered a gift to the trust. [legalclarity.org], [321trust.com]

✅ Often used with:

SLATs

Defective grantor trusts

Estate freeze strategies




4️⃣ Asset Protection from Creditors & Lawsuits

Once assets are properly transferred to an irrevocable trust, they are generally protected from creditors, lawsuits, and judgments (subject to fraudulent transfer rules). [kiplinger.com], [suddenweal...ionlaw.com]

Creditors cannot reach assets you no longer own

Especially effective when done before legal or financial trouble arises

✅ Best for: Business owners, professionals, real‑estate investors.




5️⃣ Medicaid & Long‑Term Care Planning

Irrevocable trusts are commonly used to help individuals qualify for Medicaid by removing countable assets from ownership after the 5‑year look‑back period. [kiplinger.com], [suddenweal...ionlaw.com]

Assets placed in trust are not considered “available resources”

Allows preservation of assets for heirs instead of nursing home spend‑down

✅ Best for: Pre‑retirees planning for long‑term care costs.




6️⃣ Avoids Probate & Maintains Privacy

Assets held in an irrevocable trust:

Bypass probate

Transfer privately and efficiently to beneficiaries

While this isn’t strictly a tax benefit, it often reduces legal costs and delays that indirectly preserve wealth. [kiplinger.com]




⚠️ Important Tax Trade‑Offs to Understand

Compressed Trust Tax Rates

If income is not distributed, trusts hit the top 37% federal bracket very quickly (around $15,000 of income). [321trust.com], [legalclarity.org]

👉 That’s why distribution planning matters.




Step‑Up in Basis Is NOT Automatic

Due to IRS guidance (Rev. Rul. 2023‑2), many irrevocable trusts do NOT receive a step‑up in basis at death, unlike assets owned outright. [bncjlaw.com]

This can increase capital gains tax for beneficiaries if assets are later sold.




Simple Client Explanation

An irrevocable trust can reduce estate taxes, protect assets, shift income to lower tax brackets, and help with Medicaid planning—but once assets go in, you give up control. The tax benefits are powerful, but the structure must be done correctly.




When an Irrevocable Trust Makes Sense

✅ Large or growing estates
✅ Asset protection needs
✅ Medicaid / long‑term care planning
✅ Advanced tax & estate strategies

❌ Not ideal for short‑term flexibility or small estates

Mesa, AZ Estate and Probate Lawyers : Brown & Jensen Mesa estate and probate lawyers Shad M. Brown and Scott T. Jensen help with estate planning, probate, tax law, and business law. Contact us today.

Here are common errors to check for on your W-2:

✅ Personal Information

Name and Social Security Number: Ensure they match your Social Security card exactly.

Address: While not critical for IRS processing, incorrect addresses can delay receiving your form.

✅ Employer Information

Employer Name, Address, and EIN: The Employer Identification Number must be correct for IRS matching.

✅ Wages and Tax Amounts

Box 1 (Wages, tips, other compensation): Should match your final pay stub (minus pre-tax deductions like 401(k) contributions).

Box 2 (Federal income tax withheld): Compare with your pay stubs.

Boxes 3 & 4 (Social Security wages and tax): Ensure Social Security wages don’t exceed the annual limit.

Boxes 5 & 6 (Medicare wages and tax): Medicare wages usually match or exceed Social Security wages.

✅ Retirement Contributions

Check if 401(k) or other pre-tax contributions are properly excluded from Box 1 but included in Boxes 3 & 5.

✅ State and Local Information

State wages and tax withheld: Should match your state pay stubs.

Local wages and tax withheld: If applicable, verify accuracy.

✅ Other Common Issues

Incorrect taxable fringe benefits (e.g., company car, group-term life insurance).

Missing or incorrect codes in Box 12 (retirement plans, health coverage).

Box 13 checkboxes (retirement plan, statutory employee) incorrectly marked.

How much can be deducted

Filing Status

Max Deduction

Single

$12,500

Married Filing Jointly

$25,000

Phases out starting at $150,000 MAGI (Single)

$300,000 MAGI (MFJ)

Reduced by $100 for every $1,000 over the threshol

WEEK 3 — BUSINESS STRUCTURE & IRS GUIDANCE

Day 15 – Sole Proprietor Tax Tips

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Day 16 – LLC Tax Tips

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Day 17 – S‑Corp Salary Rules

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Day 18 – Common IRS Red Flags

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Day 19 – How to Avoid an Audit

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Day 20 – What to Do If You Receive an IRS Letter

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Day 21 – Week 3 FAQ Reel

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WEEK 2 — DEDUCTIONS DEEP DIVE

Day 8 – Meals Deduction

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Day 9 – Business Use of Vehicle

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Day 10 – Home Internet & Phone Deduction

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Day 11 – Depreciation Basics

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Day 12 – Section 179 vs Bonus Depreciation

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Day 13 – Startup Costs Deduction

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Day 14 – Week 2 Recap Carousel

Hashtags:

GOOD Financial Advisor
1. Acts in Your Best Interest (Fiduciary)
Puts your needs before their own. Recommends what benefits you, not what pays them more.
2. Transparent About Fees
Explains exactly how they get paid—no hidden costs.
Fee‑only, flat‑fee, or clearly disclosed commission structures.
3. Communicates Clearly & Consistently
Updates you regularly. Answers questions without making you feel rushed.
4. Customized Financial Plans
No cookie‑cutter solutions—creates a plan based on your goals, income, risk tolerance, and life stage.
5. Encourages Questions
Wants you to understand your investments and decisions.
Never makes you feel “dumb” for asking.
6. Prioritizes Long-Term Success
Focused on sustainable growth, not “get rich quick” promises.
7. Has Strong Credentials & Experience
Certifications like CFP®, CPA, EA, or relevant professional background.
8. Uses Data & Research
Recommends strategies based on evidence, not emotion or hype.

❌ BAD Financial Advisor
1. Pushes High‑Commission Products
Recommends investments because they get paid more—insurance, annuities, certain mutual funds, etc.
2. Vague About Costs
Avoids explaining fees… or says, “Don’t worry about it.”
3. Poor Communication
Hard to reach, doesn’t return calls, or only contacts you when selling something.
4. One-Size-Fits-All Advice
Gives the same plan to everyone, regardless of your income, goals, or risk tolerance.
5. Uses Pressure Tactics
“Sign today or you’ll miss out!”
“Trust me, you don’t need to read the paperwork.”
6. Promises Unrealistic Returns
Says things like “guaranteed high returns” or “this can’t lose.”
7. Lacks Credentials or Up-To-Date Knowledge
Still uses outdated strategies or doesn’t follow tax law changes.
8. Avoids Accountability
Blames you or the market when things go wrong, instead of helping you adjust your plan.

Tax Changes You Need to Know for 2026”
Caption:
📢 Tax Changes You Need to Know for 2026
Every year, the IRS updates tax rules — and staying current can help you keep more of your money. A few key areas to watch:
🔹 Standard deductions
🔹 Contribution limits
🔹 Mileage rates
🔹 Business deduction adjustments
I’ll be breaking down each change in simple language over the next few weeks. Stay tuned!