Matching Grant Program 2021

Posted On September 21, 2021 By Scott Stratton, CFP(R), CFA In Charitable Giving /

We donate 10% of our pre-tax profit to Charity each year. Besides donating to non-profits of my choosing, I will match client donations up to $200 to a charity you support. It could be an Arts organization, university, museum, church, social welfare organization, animal shelter, or any other 501(c)3 organization!

To participate in our Matching Grant Program, please email me the name of your charity and the amount you donated in 2021. We are accepting requests now through October 31 and will pay out all donations by December 31. Matching grants will be approved until funds run out and we limit grants to $200 per client household.

I really look forward to our Matching Grant Program every year. I am so proud to see all the ways my clients do good for their communities. This is also a small way for me to say a heartfelt thank you for allowing me the honor of being your financial advisor. I love what I do and it’s only possible because of the trust which you have placed in me.

To me, The Good Life means having an abundance mentality, showing gratitude for our blessings, and giving back to make the world a better place. I am happy to support the causes that are dear to you. Thank you!

Charitable Giving in 2021

Posted On May 26, 2021 By Scott Stratton, CFP(R), CFA In Financial Planning, Tax Strategies /

For anyone who is looking at their charitable giving in 2021, there are some important things to know. In 2020 as the Coronavirus started, the government recognized the terrible impact the pandemic would have on charities. As a result, the CARES Act included several new tax benefits to encourage charitable giving in 2020.

If you made a cash donation in 2020, you could deduct $300 from your tax return. This was “above the line”, which means you did not have to itemize your deductions to take this $300 deduction. (If your itemized deductions exceed your standard deduction, you could deduct more than the $300.)
Normally, your cash donations are limited to 60% of your Adjusted Gross Income. The CARES Act increased this to 100% for 2020. (Excess donations could be carried forward for 5 years.) This means that if your income was $400,000, you could donate $400,000 and reduce your AGI to zero.

CARES Act Provisions Extended

Both of those benefits were only for 2020. But as Milton Friedman said, “there is nothing as permanent as a temporary government program.” So, the government has extended these two benefits under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021.

For 2021, you can still deduct $300 for cash donations as an above the line deduction. Unlike 2020, this is per spouse, so a married couple filing jointly can deduct $600 in 2021. And the 100% of AGI limit is also extended through December 31, 2021. Note that these apply only to “cash” donations and not to donations of stocks or goods. The limit for donating stocks remains 30% of AGI.

I do have to question whether you really would want to deduct 100% of AGI and take your taxable income to zero for one year. Let’s say you have $400,000 in annual taxable income, want to donate $400,000, and are married. Consider these two simplified scenarios. I’m using the 2021 tax rates for both years (we don’t know yet the exact income levels for 2022.)

You donate $400,000 in year one. Your taxes are zero. The next year, your income is back to $400,000. In year 2, you would owe $84,042 in Federal Income Taxes.
You donate $200,000 in years one and two. In both years, your remaining taxable income is $200,000. You would owe $36,042 in each year, for a total of $72,084 over two years. So, you actually would save $12,000 in taxes by spreading out your donations over two years, rather than doing 100% in one year. That’s because with a graduated tax system, taking your taxes to zero isn’t necessary. You pay only 12% on taxes up to $81,050.

Charitable Strategies for 2021

If you do want to make a large donation, consider pairing it with a Roth Conversion. The donation could take your AGI to zero, and then you can choose how much of your IRA/401(k) you want to convert and pay those taxes today. Then, your Roth is growing tax-free.
For many individuals or couples, the $300/$600 donation fully covers their charitable giving in 2021. Make sure you keep your receipts and donation letters! Most donors do not have enough deductions to itemize.
You can still donate your appreciated securities and save on capital gains tax. Do this if your donations will remain under the 30% of AGI threshold. Even if you are only taking the standard deduction, at least you will avoid capital gains. If you itemize and exceed the 30% threshold, you can carry forward your donations for five years.
Pack your donations into one year and establish a Donor Advised Fund (DAF). You get the upfront tax deduction and can then distribute money to charities in the years ahead. This is a good strategy if you are having a year with very high income, such as from selling a business or large asset.
If, on the other hand, you anticipate that your tax rate will be going up, spread out your donations or hold off to future years. This could be due to your income going up, tax increases from Washington on the wealthy, or the sunset of current tax rates after 2025.
If you are over age 70 1/2, you can give from your IRA tax-free. If you are 72, this counts towards your RMD. While the CARES Act eliminated RMDs for 2020, they are back for 2021. You can make a Qualified Charitable Donation (QCD) of up to $100,000 a year from your IRA.

Tax Smart Giving

No one gives to charity just for the tax benefits. We have causes and organizations we want to support. Giving back is a way of showing gratitude for our success, helping others, and being a positive contributor to making the world a better place. When we have an Abundance mindset, giving with purpose is a joy. Still, if we can be smart about our charitable giving in 2021, there can be significant tax savings. That could mean not only lower taxes for you, but ultimately, more money can go to charities in the years ahead.

Since our founding in 2014, Good Life Wealth Management has donated 10% of profits to charity each year. Additionally, we offer a Matching Gift Program to our clients each fall, in which we match $200 of donations to their favorite charity.

Giving Strategies, Now and Later

Posted On November 10, 2019 By Scott Stratton, CFP(R), CFA In Financial Planning /

If you have a significant estate and are thinking about how to give money to charity or individual beneficiaries, you might want to consider if it would be possible to make some of those gifts during your lifetime. Today, we are going to look at the tax benefits or implications of different large gift strategies.

A gift to charity from your estate will reduce your your taxable estate. However, with the estate tax threshold presently at $11.4 million per person, most people will never pay any estate taxes. This was not the case 15 years ago when the estate tax threshold was just $1.5 million. For married couples, the threshold is doubled to $22.8 million. So if your past estate plan was based on estate tax avoidance, it may be time to update your plans and revisit your charitable strategies.

Charitable donations remain eligible as an itemized deduction, although many tax payers will not have enough deductions to exceed the 2019 $12,200 standard deduction ($24,400 married). However, if you are contemplating a large charitable donation, you can deduct up to 60% of your Adjusted Gross Income (AGI) when making a cash donation to a public charity. (This was increased from 50% under the 2017 Tax Cuts and Jobs Act.) If making a donation of non-cash property, such as appreciated shares of stock, the limit is 30% of AGI. In both cases, you can carry forward any excess donation for five years.

Here are seven principles for giving to charities and to individuals, such as your children or grandchildren:

1. If you have stocks or funds with a large gain, you can give those shares to charity, get the full tax deduction and avoid capital gains tax. The charity will not pay any taxes on the shares they receive and sell.

2. If you leave an IRA to a charity, that is name a charity as a beneficiary of your IRA rather than a person, they will pay no tax on receiving your IRA.

3. For individual beneficiaries of your estate, they will have to pay income tax on inheriting your IRA. Presently, there is a Bill which has passed the House which will eliminate the Stretch IRA. However, beneficiaries will receive a step-up in cost basis on inherited taxable accounts. The most tax efficient split is to leave your Traditional IRA to charity and your taxable assets and Roth IRAs, to your heirs. Then neither will pay income taxes on the assets they receive.

4. If you are over age 70 1/2, you can make up to $100,000 a year in gifts from your IRA as Qualified Charitable Distributions, which count towards your RMD. You do not have to itemize to use the QCD.

5. You can give $15,000 a year to any individual; this is called the annual gift tax exclusion. A couple could give $30,000 to an individual. This includes your adult children. Additionally, you can directly pay medical or educational expenses for any individual without this limit.

Where many people are confused: exceeding the gift tax exclusion does not automatically require you to pay a gift tax. It simply requires filing a gift tax return, which will reduce your lifetime Gift/Estate tax limit, which again is $11.4 million per person (2019). For example, if you give someone $17,000 this year, the $2,000 over the $15,000 limit will be subtracted from your $11.4 million estate tax exemption when you die.

6. If you want to create college funds for your grandchildren or other relatives, you can fund up to five years upfront into a 529 Plan without exceeding the gift tax exemption. That is $75,000 per beneficiary, or up to $150,000 if coming from both Grandma and Grandpa. You can retain control of the funds, even change the beneficiary if desired, and the money grows tax-free for qualified higher education expenses.

7. You can make a large donation to a Donor Advised Fund to receive an upfront tax deduction and then make small donations in the years ahead. For example, it would be more tax efficient to make a $100,000 donation into a DAF and make $10,000 a year in charitable distributions for 10 years from the DAF, than to make regular $10,000 donations each year for 10 years.

Even if you know all of this information, I think many potential donors are still looking for more flexibility in their giving plans. What if you need money later? How much should you keep for your own expenses and needs? Creating a comprehensive retirement analysis is an essential first step, and then we can help you consider other more advanced giving strategies.

There are many ways of structuring charitable trusts which can split assets and income between the creator of the trust, a charity, and/or beneficiaries. Generally, the donor is able to receive an upfront tax deduction for the present value of a gift, based on their expected lifetime or duration of the trust. The present value is calculated using your age and a specific discount rate, known as the Section 7520 rate, which is published monthly by the IRS. It is based on intermediate treasury bonds and is currently 2.2% for trusts created in September 2019. This rate is down from 3.4% from last August.

With a very low interest rate being used for the discount rate today, it is quite unappealing to establish a Charitable Remainder Trust (CRT). The low rate means that the tax deduction is very small compared to trusts that were established when the rate was higher. That’s unfortunate, because a CRT is an ideal structure: the creator receives income from the trust for life (or a set period of years) and then the remainder is donated to the charity when you pass away (or at the end of the term).

A more effective structure for a low interest rate environment is a Charitable Lead Trust (CLT). In this type of trust, a charity receives income for a period of years (say 10 years) and then any remaining principal is distributed to your beneficiaries, free from gift or estate taxes. This might hold some appeal for tax payers who would be subject to the estate tax and who do not need or want income from some portion of their assets. But it doesn’t offer much appeal to donors who want income or flexibility from their trusts.

If you are thinking about charitable giving or where your money might eventually go, let’s talk about which strategies might make the most sense for you.

Charitable Giving Under The New Tax Law

Posted On December 21, 2017 By Scott Stratton, CFP(R), CFA In Tax Strategies / 2 Comments

Starting in 2018, it is going to be much more difficult to deduct your Charitable Donations. That’s because the standard deduction will rise from $6,350 (single) and $12,700 (married) in 2017 to $12,000 and $24,000 in 2018. You will need to exceed this much higher threshold to deduct your charitable gifts.

It will be even more difficult to reach those levels because the Tax Cuts and Jobs Act (TCJA) is also capping your state and local taxes (property, income, and sales) to $10,000. And they completely eliminated your ability to deduct “miscellaneous” expenses including unreimbursed employee expenses, home office expenses, tax preparation, and investment advisory fees.

Let’s take a look at a hypothetical scenario for a married couple:

In 2017, a typical year, let’s say you have $12,000 in local taxes, $4,000 in mortgage interest, $10,000 in charitable donations, $5,000 in unreimbursed employee expenses, and $6,000 in investment and tax preparation fees. (Let’s assume these miscellaneous amounts are the amounts above the 2% of AGI threshold.) Your total itemized tax deduction would be $37,000 for 2017. That’s well above the standard deduction of $12,700.

In 2018, you spend exactly the same amounts. However, under the TCJA, your local tax deduction is capped at $10,000. You keep the mortgage interest deduction of $4,000 and the $10,000 in charitable donations. The $5,000 in unreimbursed employee expenses and the $6,000 in investment and tax preparation fees are both disregarded. Your new tax deduction would be $24,000.

$24,000 is also the amount of the standard deduction for a married couple, so you are in effect getting no tax benefit for any of your spending, relative to someone who had ZERO local taxes, mortgage interest, or charitable donations. That doesn’t sound like a very good deal to me. The IRS expects that the number of taxpayers who itemize will fall from around 33% to 10%.

That poses a problem for charitable giving, because many people will in effect no longer be able to get any tax benefit at all. For people who do regularly give, it’s discouraging. Nonprofit organizations worry that this might reduce how much people are able to give.

We can help you potentially get more of a tax deduction if you can plan ahead for your charitable giving. Here’s how: by using a Donor Advised Fund (DAF). A DAF is a non-profit entity which will hold an account for you, to give grants to charities of your choosing when you instruct them. When you make a deposit into a DAF, you receive a tax deduction that year, even if the funds are not distributed until later years.

Let’s go back to our original scenario and imagine that you plan to give $10,000 a year to charity for the next five years.

Original scenario: You have $24,000 in total deductions each year, same as the standard deduction. Total over 5 years: $120,000, same as every other married couple.

Scenario Two, with a DAF: In year one, you make a $50,000 donation to the Donor Advised Fund and then give out $10,000 a year to your charities as planned. Your total itemized deduction in year one is $64,000. In the following years, you only have $14,000 in itemized deductions, so elect to take the standard deduction of $24,000 (years 2-5). Total over 5 years: $160,000. That’s $40,000 more than the first scenario, even though you still donated the same $10,000 a year to charity. If you are in the 33% tax bracket, you’d save $13,200 in taxes by establishing a DAF in this example.

With a DAF, your gift is irrevocable, however, you can change which charities receive the money and when. Or you can leave the money in the account to invest and grow for later. If you pa