By Shelley Funke Frommeyer CFP®, Founder, CEO & Wealth Advisor FFR Wealth Team
- What is important about money to you?
- What is the job for these dollars you have saved?
- How can I give more and reduce my tax load?
These questions help me get to the core of how I can help clients as a trusted financial advisor. Sometimes the answer is “I want to help my church, they are considering adding an elevator as our largest gathering space descends 18 steps into the undercroft of the building.” Or I might hear “The Boy Scouts helped me become the leader I am today by achieving Eagle Scout level, I’d like to give back.”
Consider then where are those dollars invested? Can you in fact optimize your payment of state and federal tax with your charitable heart? Saving on taxes now and in retirement can create a win for you and your qualified charities. This can be done by Direct Contribution, Qualified Charitable Distributions (QCD) or Donor-Advised Fund (DAF).
Here is a quick look these approaches to financial planning for charitable giving.
Giving directly to a charity by cash, check or appreciated stock will offer you the ability to track those gifts and itemize them in your schedule A for 1040 tax completion. Since the increase in standard deductions to $24,000 for MFJ (married filing jointly) this method does not often reduce your tax load. Worth considering in 2020 however is a temporary suspension of limits on charitable deductions.
Qualified Charitable Distribution
Are you over 70 ½? If yes, consider first a QCD – Qualified Charitable Distribution from your IRA. By instructing the custodian of your IRA to provide a distribution directly from your IRA to the 501c qualified charity, the contribution will not be counted on your 1040 as income. This can be a multiplying tax benefit reducing taxes on your other income sources such as social security and pension too.
Using a Donor Advised Fund can help you give money each year while realizing the tax relief in the particular year established. You may then consider alternating between taking a standard deduction one year and itemized the next. In your 2020 tax year, the rules have adjusted temporarily allowing you to invest more deductible dollars in a DAF.
A Winning Combination
Giving more and experiencing tax relief can be a winning combination. Wealth is about more than gaining money, it can be about changing the world. Financial planning for charitable giving strategically can help you give more and protect your personal assets as well.
Get in touch today so we can answer any questions you may have and help you structure a financial plan that supports your journey. We look forward to hearing from you!