Matching Grant Program

Matching Grant Program 2021

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

Charitable Giving in 2021

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

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.

Read More: 7 Strategies If the Stretch IRA is Eliminated

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.

 Read More: Qualified Charitable Distributions From Your IRA

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. 

Read More: 8 Questions Grandparents Ask About 529 Plans

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. 

Read More: Charitable Giving Under The New Tax Law

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

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 pass away, the DAF is excluded from your taxable estate, and you designate successors such as your spouse or children, who can decide on when and how to distribute money to charities.

If you risk losing your ability to deduct your charitable donations under the TCJA, let’s talk more about the Donor Advised Fund and how it might work in your situation. You can also gift appreciated securities, such as stock or mutual funds, to the DAF and not have to pay capital gains tax on those assets when you fund the DAF. That can give you a double tax benefit.

As your Financial Advisor, I can help you establish a Donor Advised Fund that will be held at our custodian, TD Ameritrade, using the Renaissance Charitable Foundation. This means your account will still be held with your other accounts and professionally managed to your objectives. While a DAF is clearly more cost effective than establishing a Private Foundation with under $1 million in assets, even many ultra-wealthy families find that a DAF can accomplish their philanthropic goals with less expense, compliance headaches, and time commitment.

One other option to get a tax benefit on your charitable donations: If you are over age 70 1/2, you can make a charitable donation directly from your IRA in place of your Required Minimum Distribution. See my previous article on the Qualified Charitable Distribution. The QCD reduces your above-the-line income, so you do not have to itemize to receive a tax benefit for your donation.

Charitable giving is near and dear to our hearts at Good Life Wealth Management. We donate 10% of our gross profits annually to charity and will continue to do so as we grow. Charitable giving is never just about the tax deduction, of course. But if we can stretch those dollars further, we have an opportunity to make an even bigger impact with the donations we make.

Are Your Tax-Deductions Going Away?

Last week, we discussed the current tax reform proposal in Washington and discussed how it would reduce incentives for homeowners two ways: by increasing the standard deduction and by eliminating the deduction for state and local taxes, including the deduction for property taxes. Recall that itemized deductions only are a benefit if they exceed the amount of the standard deduction, currently $6,350 single or $12,700 married.

While the legislation has yet to be finalized, it appears increasingly likely that we are on the eve of the most significant tax changes in 30 years. The proposals are slated to take effect in 2018, which means that if they are approved, there is still several weeks in 2017 to make use of the old rules.

For many Americans, your taxes will be lower under the current proposal. The biggest tax cuts, however, would go to corporations, with a proposed reduction from 35% to a maximum of 20%. That’s the proposal, but the final version may be different. The advice below is based on the current GOP plan; we would not advocate taking any steps until the reforms are in their final version and passed.

1. Itemized Deductions. The proposal would increase the standard deduction from $6,350 (single) and $12,700 (married) to $12,000 and $24,000. As a result, it is believed that instead of 33%, the number of taxpayers who itemize will fall to only 10%. If you have itemized deductions below $12,000/$24,000, you will no longer receive any benefit from those expenses in 2018.

  • Consider accelerating any tax deductions into 2017, such as property taxes, charitable donations, or unreimbursed employee expenses.
  • Itemized deductions for casualty losses, gambling losses/expenses, and medical expenses will be repealed.
  • Many miscellaneous deductions will disappear, including: tax preparation fees, moving for work (over 50 miles), and unreimbursed employee expenses.
  • Investment advisory fees, such as those I charge to clients, will still be tax deductible. However, these miscellaneous deductions only count when they exceed 2% of AGI, which will be more difficult to achieve with so many other deductions disappearing.
  • The $7,500 tax credit for the purchase of a plug-in electric vehicle will be abolished. If you were thinking of buying a Chevy Bolt or Nissan Leaf, better do so now! If you are on the wait list for a Tesla Model 3, you probably will not receive one before the credit disappears. Read more: “Is Your Car Eligible for a $7,500 Tax Credit?”

2. Real Estate. The Senate version we discussed last week had completely eliminated the deduction for property taxes and state/local taxed paid. Luckily, this has been softened to a cap of $10,000 for property taxes.

  • If your property taxes exceed $10,000, you might want to pay those taxes in December as part of your 2017 tax year. If you pay in January 2018, you would not receive the full deduction.
  • The proposal also caps the mortgage interest deduction to $500,000, and for your primary residence only. This is a substantial reduction. Currently, you can deduct interest on a mortgage up to $1 million, and you can also deduct mortgage interest on a second home, including, in some cases, an RV or yacht.
  • Many owners of second homes will likely try to treat these as investment properties, if they are willing to rent them out. As a rental, you can deduct taxes and other costs as a business expense. See my article: “Can You Afford a Second Home?”

3. Tax Brackets. The proposal reduces the tax brackets to four levels: 12%, 25%, 35%, and 39.6% (the current top bracket remains). These brackets are shifted to slightly higher income levels, so many taxpayers will be in a lower bracket than today or pay less tax. Those in the top bracket, 39.6%, who also make over $1 million, will have their income in the 12% range boosted to the 39.6% level. So don’t think this proposal is excessively generous to high earners – many will see higher taxes.

The Alternative Minimum Tax (AMT) will be abolished, so if you have any Minimum Tax Credit carryforwards, those credits will be released. The 3.8% Medicare Surtax will unfortunately remain in place, even though Trump has previously promised to repeal it. Capital Gains rates will remain at 0%, 15%, and 20% depending on your tax bracket, and curiously, these rates will be tied to the old income levels, and not to the new tax brackets.

If passed, the tax reform bill will substantially change how we deduct expenses from our taxes. Those with simple returns may find that their tax bill is lower, but for many investors with more complicated tax situations, the proposed changes may require that you rethink how you approach your taxes.

We will keep you posted of how this unfolds and will especially be looking for potential ways it may impact our financial plans. It has often been said that the definition of a “loophole” is a tax benefit that someone else gets. Unfortunately, simplifying the tax code and closing these deductions is bound to upset many people who will see their favorite tax benefits reduced or removed entirely.

How to Give Away Money

It shouldn’t be difficult to give money away, but there are many ways we can help improve outcomes for families who have more than enough assets to last a lifetime. While estate planning is important, let’s make your money go further and have a greater impact by creating a giving plan for while you are alive.

If you are philanthropically inclined, have a favorite charity, or just want your children or grandchildren to benefit from your blessings, we can help you plan how to best distribute your money, minimize taxes, and safeguard your future. Here are seven tips to get started.

1) Put yourself first. It should go without saying that you should not give away a significant amount of your wealth if there is any question as to whether you have sufficient funds to last a lifetime. With increasing longevity and rising costs of healthcare, it is not difficult to burn through a million or two over a 25-year retirement.

We begin with a retirement analysis that includes your philanthropic goals, and evaluates the likelihood your funds will cover your lifetime. The more guaranteed sources of income you have – Social Security, Pensions, Annuities, etc. – the more we can distribute other capital without worries of loss of income. The purchase of an Annuity can give you the confidence to disburse cash during your lifetime without fear of market risk, sequence of returns, or longevity.

We generally do not recommend that retirees aim to impoverish themselves to qualify for Medicaid. States have a 60-month look-back period that determines if you have given away money. In some cases, Medicaid planning may make sense, but we prefer to plan for abundance.

2) Understand the Gift Tax Annual Exclusion. Each year, you can give $14,000 (2017) to any person under the gift tax exclusion. This is well known, but most people don’t understand that you do not necessarily have to pay a tax if you exceed this amount; rather you are required to file a gift tax return, and your gift (over $14,000) reduces your lifetime gift and estate tax exemption, currently $5.49 million per individual.

Although most estates will not exceed these levels, we do know that there are many politicians in Washington who want to lower the estate exemption. So it’s difficult to predict what the exemption will be in 10 or 20 years. The easiest approach is to stay under the $14,000 annual exclusion. Remember that a couple may, combined, give $28,000 to an individual or $56,000 to another couple, such as a daughter and son-in-law.

Additionally, there are medical and educational exceptions to the gift tax. You can pay college tuition or medical bills for anyone, and those amounts are not subject to a gift tax. The best approach is to pay those bills directly to the providers, and not write a che