If you regularly make large, generous donations to Living LFS or other 501(c)(3) non-profit organizations, make sure you’re getting the biggest tax break possible for those charitable gifts, so your giving has even more impact for the Li-Fraumeni syndrome community! In this video, Joe Anderson, CFP® and Alan Clopine, CPA from Pure Financial Advisors’ Your Money, Your Wealth® podcast, TV show, and radio show outline several powerful planned giving strategies that can lower your tax burden and stretch your donations even further, whether you’re an individual or a small business.
Chapter Times:
00:00 - Intro
01:28 - Overview of ways individuals can donate to charity
02:35 - How did the Tax Cuts and Jobs Act make change tax law and make these charitable giving strategies important? Itemized deductions for married couples
5:58 - Bunching gifts to non-profit organizations
6:59 - Donor-advised funds (these can be set up through Fidelity Charitable, Schwab Charitable, Vanguard Charitable or many others. Contact your financial custodian for more details)
8:32 - Qualified charitable distribution from your individual retirement account (IRA) - a QCD can count as your required minimum distribution
10:25 - Charitable remainder trust (CRT): giving appreciated stock or appreciated property via a tax-exempt trust
14:56 - Determining which giving strategy is best for your financial situation:
Bunching - best when you are just over or under the standard deduction limit
QCD - you must be at least age 70 and a half and don’t need your RMDs
16:52 - How business owners can set up matching or set annual donations or referral incentives to make gifts to 501(c)(3) organizations, receive tax deductions, boost corporate culture, and/or say thanks to clients, customers and employees
Transcript:
Andi: Give to charity and pay less tax, so your donations have even more impact. We're going to show you how. I'm Andi Last from Living LFS, and I'm also the producer of Pure Financial Advisors’ Your Money, Your Wealth® podcast hosted by CERTIFIED FINANCIAL PLANNER™ Joe Anderson, he's the President and CEO of Pure Financial, and Pure’s CFO and Chairman of the Board, Certified Public Accountant Alan Clopine.
Thanks to people like you, Living LFS has been able to fund family camps and thousands of dollars in hardship grants to support Li-Fraumeni syndrome families in need. I've enlisted Joe and Big Al's help today to explain several ways that you can give even smarter, reduce your tax burden, and make your charitable contributions go even further. Joe Anderson, CFP®, and Big Al Clopine, CPA, thank you for walking us through this today.
Joe: Andi, well thank you. We're really excited to kind of walk everyone through different ways on how they can give to charity. There's a lot of tax advantages, of course, that we all can take advantage of as individuals or maybe even business owners. But I think, more importantly, is that what does that gift actually do. And it's really giving to really great charities like we're talking about today. So, super excited to be here. Big Al will walk us through some of the technicalities. He's the CPA of the group. I'm the financial planner, so I will talk high level and then we'll get into the weeds and get pretty deep in some individual and business strategies that I think all of you can take advantage of.
Overview
Andi: To get us started, can you give us a quick overview of ways that individuals can give to Living LFS, or any charity?
Joe: Well, sure. Big Al, what do you got?
Al: Yeah Joe, there's a lot of things that people can do, and I will say, first of all, hello. Secondly, first and foremost, we give because we want to give to charities that we feel passionate about. But there's also a way to get a benefit for us, a tax deduction. So, this is what we want to review today. So, a couple of ways you can give, one, we know cash, check, online, credit card, whatever it may be. That's one way to give. That's generally right out of your cash account. Or you can give non-cash items. So, that could be things like clothes. You could give away a car. You could give away stock, right if you want to directly to a charity, that's non-cash. So that's a couple of things there. And then below that, there're some different strategies that we're going to review. One would be bunching. Another would be donor advised fund, directly giving from your IRA, as well as some cool strategies if you're giving away appreciated stock.
Tax Law
Andi: So, what happened with tax law that makes these strategies so important?
Al: Well, good question. So, let's illustrate. So, if we look at what it looks like right now in 2022 versus what it's going to look like in 2026 - because that's what it used to be back in 2018. But let's start with what it is right now. Typical person that itemizes their deductions, they have taxes, but you're limited to $10,000 in taxes. That's all you can deduct. That's the maximum. And if you give away $10,000 to charity and maybe you don't have a mortgage or miscellaneous itemized deductions, which are no longer allowed in the new tax code, your total itemized deductions in this example for this year is $20,000. But if you're married, the standard deduction is actually $25,900, so you get the standard deduction for nothing. So basically, your entire contribution didn't really count for anything. Now, if we look back to 2026, because we're going back to the old law: well, in this example, maybe your taxes were $20,000. So, you get to deduct $20,000. $10,000 of charitable donations and then miscellaneous itemized deductions come back. So now we got $40,000 of itemized deductions compared to a much lower standard deduction. This is what it was in 2018. It will be indexed for inflation. We don't know what it's going to be. Nevertheless, in 2026 with the same scenario, you get a benefit. 2022, no particular benefit.
Joe: So let me try to understand exactly what all that was, Al. So, there's an itemized deduction and then there's a standard deduction and then you can either itemize or take the standard, and you're going to take whatever deduction is higher. So, prior to the new tax law, you could itemize a lot more items to get a lot larger itemized deduction. That's your schedule A. And so this whole tax reform came about and said, You know what? We're going to simplify the tax code and we're going to double or increase the standard deduction. So, we don't have to worry about itemizing. You don't have to look up your mortgage statement. You don't have to figure out what you gave to charity. You don't have to figure out what your doctor bills were, and everything else. As long as it's under $25,000, you're good to go. Just take the standard deduction that's going to save you a lot of time and headache. But guess what? It created a lot more headaches than it necessarily intended to, because a lot of people like you give to charity, and you want to get that tax deduction for giving to charity. And a lot of cases people were giving maybe $1,000, $5,000, $10,000, whatever the case may be, but they weren't necessarily seeing the benefit on their tax return because they weren't itemizing anymore. People like to itemize their deductions and say, You know what, I'm going to give $10,000 to my favorite charity and you could see it right there and you could get that true tax benefit. But if you're just getting the standard deduction, that's all you saw. And so, I think a lot of people - or a lot of charities potentially were getting hurt over the last couple of years because people weren't necessarily giving because they didn't see the benefit.
Al: Yeah, that's right. And that's one change with this new tax law is that you didn't always get benefit for your charitable deductions. In fact, I would be willing to say most people have not seen much benefit in their charitable deductions. So anyway, that will be better in 2026. But because of that, gotta consider other strategies.
Bunching
Joe: So, then they're looking at, OK, well, what can I do? How can I see that overall benefit? And I think bunching is a big one. So, a lot of us give on an annual basis. I'm going to give a $1,000 a year, $5,000 or whatever the number is. It doesn't necessarily matter. Maybe you give all in one year. And so, I'm going to give five years worth of giving in one year. So I'm going to bunch all my gifts. So I'm going to give you $10,000 this year, but over the next five years, I'm not going to give you anything. But then at least you can get the overall deduction.
Al: Yeah, and Joe an example of that would be, 2026 is the same as what we looked at before, but 2022, it's just like what you said, which is take a bunch of years and contribute it all at one time. So, in this example, you take three years of contributions, $30,000 all in one year. Now you're itemized deductions are $40,000, which is more than the $25,000. So, you actually will get a benefit. As opposed to if you do the same thing, you're always doing no benefit in 2022, 2023, and 2024.
Donor-advised fund
Joe: They came up with a pretty cool strategy. It's called a donor-advised fund. So, what it is, it's a kind of a foundation of your own. It's really inexpensive to set up, but then you can put the $30,000 in there. You would get the tax deduction that year, but then you can dole out your charitable contributions when you see fit or you can have your annual contributions just like you always had.
Al: Yeah, that's actually one of the best things around because you can take future years contributions and deduct them in the year that you want to deduct them. So if you're doing bunching, that's a great way to get a bunch of contributions all in one year. Or maybe you've got a big income year or a big bonus, or maybe you retired, you got a bunch of accrued vacation. You need a deduction. So here's a way to go ahead and open up a donor-advised fund. You contribute cash or property. And what happens then is it's the account you hold. You're the trustee. You get to decide what charities get what amounts over time, but you're getting the tax deduction when you put the money in, in the year that you need it. So, Joe, that's a really good way to do tax planning in years where you need that extra deduction.
Joe: Yeah, if you want the deduction, you have higher income, so you can use this fund, get that tax deduction in that given tax year, and then the next year, if you want to give something, you can always contribute back into the donor-advised fund or you can say, you know what? I'm good. I have enough money in the donor advised fund. But then, you know, give whatever your annual contributions to your favorite charities and they're out because you're just taking it from that overall account.
Qualified charitable distribution
Al: Yeah. So, here's another one, which is if you're over 70 and a half, you could do what's called a qualified charitable distribution. We'll call it QCD for short. And what this is, is you can give to charities directly from your IRA. So pretty cool, you're not going to get a deduction, but what you do get is, you pull money out of the IRA and you don't have to pay taxes on it. It doesn't go on your tax return. And then furthermore, once you're 72, this can count for your required minimum distribution. So if you don't even need your required minimum distribution, you can give it directly to charity and have that count instead. It's $100,000 per person. Most people, Joe, find that's plenty.
Joe: Yeah. And so the real benefit here is that - there's two ways to give to charity. You could give cash, appreciated stock, right? But once you get older and you have to start taking distributions from that account, it's a force out, it's called a required minimum distribution. So, you're forced to take money from your retirement account. And the reason for that is the IRS wants to get their money, right? They want you to pay tax on it because it's never been taxed. So another way to avoid some unnecessary taxes on other items is that you can avoid the income on the tax return altogether, so the money goes directly to the charity from the retirement account. And the biggest benefit of that is that, let's say people that are on Social Security or taking Medicare, things that could hit their adjusted gross income that potentially could cause other taxes - this way, it could avoid it altogether.
Al: Yeah. And so by doing that, you don't really have to worry about bunching or donor-advised funds because you're giving directly from (the IRA to) charity. It's not showing up on your tax return. You didn't get a benefit anyway because you wouldn't have because of the new itemized deduction rules, but you don't have to include it as income. So it's a pretty cool thing.
Charitable remainder trust
Now I want to kind of pivot a little bit, if you have appreciated stock or appreciated property. There's something called a charitable remainder trust. We like to call it a tax-exempt trust.
Joe: And this is looking for larger donors. You know, I think for the most of us, it's, hey, I would like to give a $1,000, $5,000, you know, something like that. But this is a great strategy, A, if you want to reduce taxes. OK, let's say you have appreciated property. You don't want to sell that property because, hey, I've owned this thing forever and I'm just going to get crushed in taxes. I'm just going to own it until I pass, and then I'll just give it to my kids and they can do whatever they want with it. All right. This is a strategy, just to set you up, Big Al, is that (A) you can basically look at, don't worry about the taxes anymore, right? It will reduce the amount of tax that you pay or almost avoid the taxes altogether on what you're selling that property for, or whatever appreciated stock that you have, you can create an income from that overall asset tax-efficiently and then finally get a large tax deduction today. And then finally at you and your spouse’s passing, potentially then gives to the overall charity. So there's a huge benefit upfront for the family, and also the benefit to the charity also kicks in after both of you have passed.
Al: Yeah. And I think that's well said. This is for large appreciated, usually property, could be stock. Like, for example, if you have a million dollar property and maybe you're receiving rental income of $25,000. So not that much. And then you contribute this property to a charitable remainder trust. Let me explain how that works. So you go ahead and contribute the property. The trust has it. Because it's tax exempt, it pays no tax on the sale, and then you receive income payments for life and the income payments are not only income from what's inside the trust, you know you sold that asset. You probably invest it in some kind of portfolio for growth and income. You not only get that income and growth, but you get 90% of the principal back over your lifetime, so that $25,000 of income could turn into $100,000 in income or $150,000, depending upon your age. The older you are, the higher the income is, because you're supposed to get 90% of this out back over your lifetime. Now, also, because charity will get what's ever left in the trust when you pass away, you get a deduction up front in the year you put the asset in, and the deduction is usually 10%. So, 10% of a million dollar property would be a $100,000 charitable deduction right on your tax return. So, I would say it doesn't apply to everybody, but for those it applies to Joe, it's a really great deal.
Joe: Yeah, how you want to think about this is that the IRS, when they put these strategies together, they will forgive a tax if you plan a gift. They love people that give to charities, so they will absolutely forgive that tax if you plan a gift. So how you look at this strategy is that if I'm going to sell a highly appreciated property or let's say you bought, you know, Tesla, Netflix, Amazon a long time ago and you have a huge appreciation in there, but you want to diversify. You don't want to sell it just because of the huge gains, right? Because you have a capital gains tax, it could be 15%, it could be 20%, or it could be as close to 25% plus the state of California, where we live. So, if I sell a million dollar, you know, let's say, there's a million dollar gain. I'm only using that just hypothetically because the math is pretty simple. So, I could be 35% in tax roughly, or 25% on the low side. So that's $250,000 that, right off the batm I would have to pay the tax. Or I could utilize this strategy. The property goes in the trust, the trust sells the property. There is no tax due, and then I have to give a 10% to a qualifying charity at mine or my spouse's death. You can set this up any which way you want, but it's like, would you rather pay 25% upfront or 10% at you and your spouse's passing? So, there's some unique strategies that you can absolutely take a look at (A) if you want to get a little bit more sophisticated in your strategies and planning, and also, making sure that the things that you want to go to the charities go to the charities at you're passing.
Summary: Individuals
Andi: So how do donors know which giving strategy is best for their situation?
Al: So right off the bat, bunching, so we talked about that, you make contributions all in one year, so you get a bigger tax deduction. You can do that through a donor-advised fund if you want. So, this is best when you're just under or just slightly over the standard deduction. So basically, what this is saying is when you're not getting any benefit for your charitable deductions because of the high standard deduction like we talked about, when you bunch it, you can have one year that's a lot higher and get some benefit. Another one would be when you've got appreciates or appreciated property - works in either one. If you have appreciated stock, you actually can give that directly to charity or directly to a donor-advised fund. Whatever it's worth on the date you give it away is your charitable deduction, so that's a great way to go. That's a lot better than writing a check, because you don't have to pay the tax on the gain. So remember that one. But the other strategy we just talked about was the charitable remainder trust. That's when you have appreciated stock or appreciated property. Probably in that million dollar range and above is where this starts to make sense. I would say it's kind of a rule of thumb, but that can allow you to sell that property inside the trust, pay no tax, and have a much higher earnings stream. And then finally, qualified charitable distributions - when you're over 70 and a half, and particularly valuable when you're over 72 because you can give money directly to charity and it counts as your required minimum distribution.
Business Owners
Andi: Can business owners use all of these same giving strategies?
Joe: Well, yeah, business owners can absolutely use the strategies that we talked about. Because a business owner also has personal preferences, so if they have highly appreciated stock, they can use those strategies, if they want to bunch, if they want to use a donor-advised fund, if they want to give their RMDs directly to charity - so all of those apply to everyone.
Andi: What are some other ways business owners can give intelligently?
Al: Maybe we'll just talk about maybe three of them. Matching donations. A lot of companies, when their employees make a donation, they will have some kind of match to some kind of limit. That's a great thing for charity. It's a great thing for your employees in building culture because employees love that. They know when they give a dollar, you're going to give a dollar up to a certain level. So that's actually a really good one as an employee benefit, helping culture. Set annual donation amounts, which basically means maybe the company will give the charity to a certain level. Maybe it's $100 per employee. Maybe $500 per employee. Gets them excited about charities. It again helps your culture, and it helps everyone feel good about them helping organizations that need help. And then sometimes, companies have referral incentives where if you bring in a client, maybe the employee then gets some money donated by the company to the charity of their choice. You know, be creative. Figure out what you're trying to accomplish. And if you're trying to accomplish doing good for the world by giving donations, you'll get some benefits so your clients could feel good about it, your employees, kind of a win-win all the way around.
Andi: Thank you to Joe and Big Al from Pure Financial Advisors and Your Money, Your Wealth® for sharing all these great donation strategies with us. And thank you to the Living LFS community. It's your donations, large or small, that make it possible for us to present the Living LFS Jennifer Mallory Family Camp, where the LFS community comes together to learn how to cope with the diagnosis, how to communicate with others, how to deal with mental health issues around LFS. And it's also what makes it possible for us to present the hardship grants that help the LFS community to get the cancer screenings and treatments that they need. Give once or set up a recurring donation at livinglfs.org/donate and help us to continue helping the Li-Fraumeni syndrome community. Thank you very much for watching.
