‘Tis the season here at Keen Wealth!
While folks are wrapping up their holiday shopping and party plans, we’re helping clients put a bow on their 2018 finances. This time of year I’m always moved and inspired by how many of our clients are looking outside of themselves, using the assets they’ve worked so hard for to improve our community and help those in need.
On today’s show, we discuss how charitable giving factors into your year-end tax planning preparation. A little forethought and some guidance from a financial professional can help you maximize your generosity – which could make a big difference in another person’s life this holiday season. According to experts, giving could give your own health and happiness a big boost as we head into the new year.
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1. Don’t feel guilty about taking a deduction.
Some folks are a little hesitant to ask us about the tax benefits of charitable giving, as if asking the question diminishes the motivation behind the act. I certainly understand and respect the sense of modesty many individuals have about giving, but charitable deductions are part of our tax laws for a reason. As Amazon’s Jeff Bezos pointed out in a recent interview, private sector philanthropy can address many problems in society more effectively than the government and free markets. Our leaders in Washington want to encourage giving from folks who have the means. While writing a check without worrying about deductions might seem more selfless, thoughtful tax planning around these issues might enable you to do even more good, both for your family and for causes that you care about.
2. Consider the new standard deduction and your giving level.
The new tax laws that were passed in late 2017 raised the standard deduction to $24,000 for a married couple. The goal was to simplify taxes so that people wouldn’t have to keep track of so many itemized deductions. Some analysts worried that this change would have a negative impact on charitable giving, since anyone who will take the standard deduction won’t technically get a deduction for their giving anymore.
A more positive way to think about this is that if you take the standard deduction, you’re getting the same tax benefit whether your giving would have gotten you to $24,000 or not, while making your taxes a little easier in the process. However, folks who still plan to itemize, or, who are contemplating a larger donation should discuss the tax strategies that are best for their individual situations with their fiduciary advisor.
3. Identify the best way to give.
Cash is the simplest and most common form of giving, however, there are other options to consider, especially if your donation would bump you above that $24,000 itemization threshold:
- Make a qualified charitable distribution. Once you reach age 70 ½, you have to take required minimum distributions (RMDs) from your retirement accounts every year, or, you could end up facing one of the heftiest penalties in the tax code. If you have an IRA, you can elect to have all or a portion of your RMD sent directly to a 501(c)(3) charity and, therefore, avoid paying taxes on it. For individuals who have to take RMDs but don’t need the money to cover expenses, this is a great option.
- Estate planning giving for high-net-worth individuals. There are two kinds of trusts you can set up that identify both a non-charitable and a charitable beneficiary. A charitable remainder trust pays out a percentage of the assets you deposit into the trust over a set period of years to your designated beneficiary, and then pays out the remainder to the charity. A charitable lead trust is the exact opposite, as it pays the charity first. Private family foundations are another option, but these can be expensive to maintain and operate.
- Donor-advised funds. Think of this like a “charitable checkbook.” You create an account, give it a name, and then put cash, appreciated assets, or, in some cases, even business assets into the fund. You get a tax deduction for the year in which the assets go in, and then you donate from the fund as you like. Some folks who anticipate a large amount of sustained giving over a few years will put the whole amount into the fund at once to get a larger tax deduction for the year of deposit. Just be aware that putting assets into a donor-advised fund is irrevocable, and the beneficiaries have to be 501(c)(3) organizations.
Setting up donor-advised funds is a service we’re able to perform for our clients at Keen Wealth, but we can also offer knowledgeable advice on any of the charitable giving options discussed on today’s show. Our philosophy is that financial planning should help you get the most from your money, not just more money. We strongly believe that helping others can truly be one of the most rewarding pieces of that process.
My team at Keen Wealth wishes you and your family all the best this holiday season. Thank you so much for listening to and reading Keen on Retirement in 2018 and check back for more informative content in the new year.
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Got a question or comment? Email it to me and we’ll get back to you or call our office at (913) 624-1841.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.