Hello, and welcome to the Life By Design podcast, brought to you by Strategic.

This podcast is all about helping you live your great life.

Hello, and welcome back to the Life By Design podcast.

Today I'm joined by Nick Ecredeno, certified financial planner and lead advisor here at Strategic.

Hi, Jay.

Thanks for having me.

Yeah, man, this is gonna be great.

And so for today's topic, we're gonna talk about, uh, charitable giving, how that affects financial planning, all that, all that good jazz.

Uh, and the first thing I wanted to ask you, Nick, though, is tell us a little bit about your background in philanthropy.

Yeah, sure.

So I'm in my third year here at Strategic, uh, but previously worked in fundraising at a local university.

Uh, so I had the privilege of working primarily with individual donors, uh, some corporations as well, uh, to identify the needs of the institution and, you know, how individuals can, you know, make that work with the financial assets that they've accumulated.

Yeah.

And I think one of the things we're gonna kind of cover today is financially, you know, how that affects you.

But I think one of the things too, how generosity is a key pillar of living your great life, right?

Yeah.

Uh, living a great life is our mantra here, and it's something we talk about, uh, with our clients all the time.

And there's enough information out there that suggests that those who volunteer at the organizations that are important to them and, you know, give away some of their assets, uh, to help support those financially can actually impact and increase your happiness and longevity.

There are, uh, relations there.

So, uh, you know, we see philanthropy as a key part of a total financial plan for those who are, you know, charitably inclined.

Yeah.

And I think that's, I mean, it seems like a no-brainer.

Like, if something makes you happy and you help support it, like, of course you're gonna be happy.

Yeah.

Right.

Right?

Uh, allegedly.

And so right?

So, but uh, you know, in addition to just my feelings and my great life, uh, there's also some things specifically in retirement—

that charitable giving helps me with.

Yeah, of course.

So if a client were to come to us with some ideas on, um, some organizations they want to support, uh, there are definitely tax advantaged ways to, uh, take advantage of your assets and make those gifts.

Um, you know, the first place we all often always go to are what's called a qualified charitable distribution, sometimes known as a QCD.

Uh, if a client is eligible, um, you know, that's where we're gonna first direct them to make their gift.

Uh, you have to be 70 and one half years of age.

Um, don't tell me or don't ask me why the IRS picked that.

Yeah.

Uh, but, uh, the mechanics effectively are giving assets directly from your IRA to the organization.

Uh, why that's a big deal, um, if you were to take that out of your account and put it in your checking account and just, you know, spend it on what you wanted to do, you have to pay income tax on that, whatever your tax bracket is.

Uh, instead if you give it directly to the organization, uh, you pay no tax at all.

So it could lower your overall taxable income for the year.

In addition, uh, if you are of age where you need to, uh, take distributions, often called a required minimum distribution, uh, that'll satisfy your RMDs.

So if the IRS says you have to take $50,000 out of your IRA this year, instead of taking it yourself and, and paying the tax on it, you can gift it to the charity, uh, meet the RMD requirement, and avoid the taxes altogether.

Yeah.

Yeah.

And that's something, uh, we've talked about before and we're gonna talk about in the future on this podcast.

Something that people don't realize is the required minimum distributions, and, and those have to happen at certain ages.

Sure.

No avoiding them.

Right.

And so this is one way to, I mean, you know, do what makes you happy and also, you know, hopefully offset some of your tax burden.

Yeah.

Exactly.

Yeah.

It's interesting, uh, you know, I think that there's also different ways to look at it as well, right?

So not just what's coming out of, uh, your IRA or cash that you have on hand, but like there's some appeal in gifting, like, long-term, like appreciated stock or real estate instead of cash, right?

Yeah.

Exactly.

So that's, uh, that's sort of the next place we'll look to a client's assets to see, uh, what's the right gift to make.

Uh, if someone holds appreciated stocks or securities, uh, fixed income instruments, various things like that, uh, again, if a individual takes that, sells that asset, takes it as income, they're paying likely capital gains tax on that, which is a little preferred than ordinary tax, but still a tax that you're, you have to hit.

Uh, instead, an individual can take that—those shares of Apple or whatever has done well in your portfolio, gift that directly to the organization, and the tax advantage there is A, avoidance of capital gains, right?

You're not getting hit with it because you're not selling the asset.

Uh, you get a full fair market value deduction on the, uh, appreciation, and the organization, if they're a qualified, uh, nonprofit organization, can liquidate that and, uh, they pay no tax on receipt, right?

So you avoid the taxes and the charity doesn't have to, uh, take the taxes as well.

Mm.

Gifting, uh, and that's, you know, investment assets.

Gifting real estate can get a little more complicated.

Um, you know, if you're into that, I would certainly recommend working with your financial advisor—

and your tax advisor.

You're gonna want to make sure that the, uh, real property has been, you know, valued and assessed appropriately, uh, because, you know, that's gonna be in play as well.

But certainly if you have a property that's appreciated well that you don't think, uh, you'll need and want to gift elsewhere, an organization, as long as they're able to take it, they would love to have it.

Yeah, and I, I think it's just nice to know for folks that there's multiple different avenues that they can approach this.

They're, they're helping their charity, or, or, you know, whatever their philanthropy is—

they're helping that and, and they have multiple options.

Yeah, of course.

Which is, which is always good.

Yeah.

Um, so there's this thing called bunching donations, uh, and I'm trying to understand why it matters—

like, I guess, for, what is it, deduction thresholds now?

Yeah, exactly.

So if you remember back in 2017, uh, when the Tax Cuts and Job Act passed, the, uh, the standard deduction level was increased to a point where now about 90% of, uh, individuals and households in this country just use the standard deduction.

They do not itemize their deductions—

on their tax returns.

Uh, bunching, uh, sort of came about around that time, where the concept is if, if you know, "Okay, over the next few years I want to donate $30,000."

Mm-hmm.

Uh, instead, if you have the ability, it may make sense to gift that amount, that $30,000, in one single tax year.

And the advantage there is that may then, push you over the standard deduction limit, where now you can itemize and you can actually gain the benefit from that deduction—

instead of spreading it out over multiple years.

And there's a few different ways to do it.

If you're just supporting one or a few organizations, you can gift directly to those in, in, in that same year.

Oftentimes what we're seeing are clients opening and funding donor advised funds, which are effectively mini foundations that you can manage, that you can recommend gifts from, uh, and at the time, so you open the donor advised fund, you gift the asset to the fund, and then you get to control it.

If you want to give it that year, you can.

If you want to, uh, wait a couple of years and spread it out as you—

originally intended, you can do that as well.

It gives you a lot more control and flexibility over your giving.

Yeah, I think that's cool to, yeah, again, right, all these different avenues are just so great so that you, you, there's not just one way to do this—

which is amazing.

Mm-hmm.

So now, as things do, we have change.

New bills are passed.

Uh, recently there were some new rules around giving and, like, how it works now and, you know, as of this recording.

So, like, what are some of the new things I should probably look out for if I, if I'm into charitable giving?

Yeah, exactly.

So, uh, there is certainly many of the rules have stayed the same, but there are new things that have been introduced.

One of those is the floor for gifting if you are itemizing deductions.

Mm-hmm.

So previously, if you itemized and you gifted an amount, you could deduct that amount based on your AGI, uh, for the year.

The new legislation that just passed introduces a floor, about half percent of your income for the year, um, that you must surpass.

Then you can, then the deduction begins to kick in.

Again, something you're gonna certainly want to work with your tax advisor and your financial planner to make sure that you're in the right thresholds, uh, and you're, and you're meeting these, uh, you know, these levels.

Yeah, and, uh, it, for us it's just more like putting it on your radar as a listener—

of like, "Hey, this, this is something to look out for."

Mm-hmm.

Um, as long as, as long, uh, as far as above the line giving incentives too.

Mm-hmm.

That, there's a change there as well, right?

Yeah, this is really exciting.

So for, uh, individuals previously, uh, until this year, uh, if you didn't itemize your, on your taxes, you were simply giving out of the kindness of your heart, which is incredible, but you were not receiving any tax benefit for that.

It only went to those who itemized on their taxes.

Mm-hmm.

Now the, uh, the new legislation is introduced an above the line deduction, uh, for those who do not itemize.

It's $1,000 for individual filers, $2,000 for families, uh, that, uh, even if you do not itemize, uh, if you can, a family can gift up to $2,000 and they can deduct that from their income, uh, and can factor into their, uh, tax returns.

Yeah.

Yeah, I think that's great, Nick.

And kind of wrapping up today, you know, I think if we take anything away from this podcast it's there's multiple avenues for gifting—

especially in retirement and, what, 70 and a half—

uh, and older, there's some, some ways to do that.

And just remember that, uh, yeah, I think it's, it's both good for your great life and, and good for your, your taxes.

Yeah, exactly.

So, you know, oftentimes the, uh, gifting—you want to make sure that you have charitable intent and that you want to help make a big difference in the world.

And if that's the case, and most people can answer yes to that question, work with your advisor and find the right way to do it that benefits you and benefits the organization and the people that you want to help.

Fantastic.

Thanks, Nick.

All right.

Thank you, Jay.

This podcast is for educational and informational purposes only.

Please see the full disclosure in our show notes for more information.