Charitable Giving with the Tax SuperSheet™

Are you a giving person?

Charitable contributions can significantly lower your tax bill, and there are many different strategies available to take advantage of this tax benefit.

Donations of non-cash property or shares of stock, creating a Donor Advised Fund, or exercising a Qualified Charitable Distribution are all viable options for reducing taxes through gifts you are already planning on giving. By comparing the overall tax benefits of each of these strategies, the Tax SuperSheet illustrates which option is ideal for you.

FFP recently developed a charitable giving strategy for a retired client, with a substantial IRA, and several other income sources adequately funding their retirement. The client doesn’t require IRA distributions to fund their personal spending and were interested in donating a large sum to their favorite charity. After running the numbers through the Tax SuperSheet, we found significant tax savings in making a one time $100,000 IRA distribution to a Donor Advised Fund in the current year. By adding the gift to the itemized deduction page of the tax return we anticipated current year tax savings of $6283. But the tax savings didn’t end there. The one time distribution lowered the required minimum distribution for all following years (because there is now less money in the IRA), and thus also lowers the tax bill for all following years. We project tax savings of $11,003 for the next five years and total tax savings of $45,256 over 20 years.

Simply put, the charity received $100,000 while the client will only end up paying $54,744 for the donation over their lifetime. If you are the giving type, the team at FFP Wealth Management is continuously developing strategies such as this to give you the most value for your charitable gifts.

WHY DONOR ADVISDED FUNDS?

Tiffany Brynteson, CRPC -
Donate now, decide later. A contribution to a donor advised fund (DAF) separates the tax event from the grant making event. You recommend grants to charities on your own timetable thus reducing year-end pressures to select one or more charities to support.

Facilitate special asset considerations. Not all charities accept or have the knowledge or capacity to accept gifts of stock and other appreciated assets. Your DAF provides you the maximum deduction allowed by law, and a firm that handles foundations and endowments has the expertise to accept the widest array of assets.

Make the most of your charitable dollars. You or your advisor can recommend the investment strategy for your contributions to your DAF. This eliminates the concern about
how charities manage or mismanage investments. Any growth in assets is tax-free which
provides the potential for greater charitable gifts.

Reduce recordkeeping frustrations. A DAF account provides consolidated reporting
and record keeping. You can make grants to multiple charities and you will need only one tax substantiation letter (for each contribution to the account). You can also review your history of grant making online before making future gifts.

Leave a lasting legacy. Your DAF can establish an enduring family legacy for philanthropy. Your family can continue involvement in grant making and investments by naming successor advisors to your account.

Provide for accountability. It is important to match the size of the contribution to the capacity of the charity. Capacity is a term that encompasses size, administrative capability, investment sophistication, stability, and accountability of the board. Are the
charity's administrative expenses reasonable? Does the charity have the sophistication to use a large gift effectively?
Large grants can be like a heavy rock dropped into the bottom of a small boat. Many small charities have become divided over large contributions due to the lack of a clear strategic plan, clear policies, and investment experience. Conversely, some larger charities treat contributions as "free money" and use them to pay for fundraising and administrative expenses, which is typically not what the donor intended.
Giving through an independent intermediary charity such as an endowment foundation is a flexible way to provide long-term support for favorite causes. The independent intermediary can donate capital and/or income to the worthy charities at your recommendation. That way the capital is well managed by a responsible entity and the work of the operating charities is supported.