The following are some ways to tap hidden money, also referred to as Smart Giving. Some of these tools can add 12% or more to your return on investment. If you don’t take advantage of the hidden money it is lost.
What is hidden money and where is it going? Hidden money refers to the funds that are being paid anyway to the government in taxes. By taking some simple steps described below the tax-payer could keep the funds that would have been paid in taxes or use the hidden money to make a larger gift to your favorite charity.
IRA REQUIRED MINIMUM DISTRIBUTION (RMD)
Make charitable donations of your RMD instead of cash up to $100,000. You can still use the standard IRS deduction (2019: Single $12,200, Married $24,400) because the RMD donation comes off your total income before the standard deduction is applied. It’s comparable to earning 12% on the donated RMD if your tax rate is 12%, or higher if your tax rate is higher than 22% or more. Now, this is Smart Giving!
RMDs begin by April of the year following your turning 70 1/2. If you are still an employee and own less than 5% of the company you work for, you can delay taking the RMD until April 1 of the year after you retire.
DONOR ADVISED FUND (DAF)
Making charitable donations may not have any tax benefit if your standard tax deduction is higher than your itemized expenses. Bunching more than one year’s charitable donations into a single year may allow you to fully utilize your charitable tax deduction. If bunching the aggregate of multiple years’ donations into one year using a DAF added to the allowed deductible expenses exceeds the standard deduction you can itemize your deductions in the year that you bunch your donations getting full credit for the charitable donations and then take the standard deduction in subsequent years. A DAF allows the donor to recommend distributions from the DAF to your favorite charities over many years after your donation. You can even involve your family in deciding the charitable recommendations. Call us for further information and a DAF contract.
GIFT STOCK NOT CASH
This method is a huge win for donors and easy to do. Consider giving appreciated assets such as stock instead of cash to your church or other favorite charities and avoid paying capital gains tax. If you like your stock, use the cash you planned to give to repurchase the stock. The benefit to you will be to raise your basis (cost) of the stock. The higher cost basis will be very beneficial in the future. CSF can handle stock donations for a nominal donation so it is easy to do. You can donate appreciated assets up to 30% of your Adjusted Gross Income (contact your accountant or the IRS website). Call us for the instructions on how to make this Smart Giving move.
TAX-FREE REAL ESTATE SALE
If you have appreciated property such as a second home or land and want to make a charitable contribution, contact me for some options to plan for a tax-free sale. Then, discuss these options with your accountant. You will need to put your plan in place before you sign a sales-contract, or these options are forfeited.