Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged, and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Incorporated, a Registered Investment Advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning, and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is Nate. I have Mike joining me this morning, last show in April. It is moving right along already.
Mike VanZuiden:
Here we go. Graduation around the corner.
Nate Kreinbrink:
Graduation is around the corner. My kids have already started their countdown for how many days of school left, and it’s not many. It’s not many.
Mike VanZuiden:
You get some of these days where the weather seems to really be turning, and oh boy, it’s summer. You could smell it in the air, almost.
Nate Kreinbrink:
You can, and then you have another day where you’re just like, “It’s cold out there.”
Mike VanZuiden:
Yeah, “I need my winter coat back out.”
Nate Kreinbrink:
I’m coaching my youngest one’s baseball team, and as everybody that’s been through it, whether it’s baseball, softball, track, whatever fall sport it is here in this area, this time of the year, you have got to dress in 17 layers, because you’re going to start by getting sunburnt and you’re going to have five sweatshirts on by the time this thing is over, because …
Mike VanZuiden:
Yeah, yeah. Bundle up.
Nate Kreinbrink:
Then rain and then it’s wet, and it’s … but it’s so fun.
Mike VanZuiden:
Yes, sounds like it.
Nate Kreinbrink:
Again, good luck to everybody that’s out there with anything going on this time of the year. One of these days, it will be warm and stay warm, but to me it can’t get here soon enough.
Today’s show, I know that we were going over a bunch of different topics that we wanted to cover today. One area that again seems to come up at a lot of the meetings that we have with clients or prospects or anything is, “How do I use and how do I maximize charitable giving, and then how can I utilize that in my big picture of what I’m already doing? Is there something I should be doing differently?”
The thing of charitable giving has evolved over the last, again, you could say probably seven, eight years, with the raising of the standard deduction. When taxes changed of how you filed, the standard deduction went a lot higher, whether you’re filing single and married, essentially meaning that the majority of people are not itemizing when they file their taxes anymore.
In essence then, the contributions you’re giving to your local church or the charitable gifts to the local humane society or whatever the case it may be, you used to keep track of all those. You’d add them all up, and you’d be able to then use those on your tax return. Well, if you’re not over the standard deduction, you’re automatically getting that standard deduction, and those itemizing things that you’re keeping track of, again, good practice to keep track of them, but you’re not getting any additional benefit, because you’re getting that standard deduction.
There’s a lot of different ways that we can look at doing that. Again, the one thing that’s, again, quick and easy to look at is that if you are age 70 and a half or older, and you have an IRA account and you are giving to any charity, you need to be giving that to the charity directly from your IRA, the reason being is that any distribution from an IRA account, as we’ve went over, is taxable. You take out a thousand dollars. Okay, you’re going to give that to a charity. Again, it’s going to show up as a thousand dollars on your tax return. You have to pay taxes on that.
Now, if you take that a thousand dollars and have it go directly to the charity, so it never really goes into your pocket … the check is made directly out to the charity, it goes to the charity … you do not pay taxes on that. The charity does not pay taxes on that. Again, you can get money out of those type of retirement accounts once you hit age 70 and a half and not pay taxes on that. You’re giving the same amount to the charity. You’re just not paying taxes on what you’re giving it to them.
Mike VanZuiden:
Yep. Biggest Loser there is the IRS.
Nate Kreinbrink:
Right. When you’re starting to look at it, whether you, the charity or the IRS, which one would you rather have pay the tax on that money? Well, the IRS is paying the tax on it, because they gave you a tax deduction when you put money into that. You just don’t have to pay that back as long as you give that directly to the charity. Again, if you are doing that and you check those boxes that I just went off, there’s really, in the majority of cases, there’s no reason for you not to be utilizing that.
Now, I will preface that to say if you’re giving $5 to the local Girl Scout company, whatever, we’re probably not taking that out of there. We’re probably looking at a little bit higher of contributions to it. Again, there’s nothing to say you can’t lump them all together. If you’re giving a monthly contribution of $10 to this charity, well, give it to them all at once. Just give them one $120 donation and you’re good for it, but now let’s take that out of there to, again, save on those taxes.
Mike VanZuiden:
I think that’s one of the things, Nate, that clients, oftentimes it’s an educational thing, right? I mean, once you’ve heard of this and once you’ve gotten in the habit, you’ve reached age 70 and a half, you’ve had these conversations, then that’s just how you do it going forward. It doesn’t become a question of, “Oh, how do I do this, or where should I take it from?” Most people don’t even think of that, because up until age 70 and a half, it really didn’t matter.
If you’re taking it right out of your checking account, that’s how you always have always done it, and that’s how you kept track of those charitable donations. To your point, in more recent times, probably haven’t been using them on the tax return, in terms of getting any benefit from doing it that way if you were just taking the standard deduction. However, going forward, again, knowing these things is key and can just really help both ends, really, I mean, the charity and for you, so what ends up in your pocket.
Nate Kreinbrink:
Right. I think, again, you start going through this, and again, people look at you and be like, “Yeah, there’s really not a reason for me not to be doing this.” Again, just helping them out. Again, we’re not changing what you’re giving. We’re just, again, we’re changing the pocket that you’re taking out of to donate that same money. Again, like Mike just said, if we can have the IRS pay the tax and we don’t have to, the charity doesn’t have to, it’s a no-brainer to not utilize this.
Then the follow-up question always comes along with this, is like, “Well, I’m not 70 and a half yet. Now what do I do? That sounds great, but I’ve got seven years yet before I can utilize that.” Which again, a lot of people, at retirement or whenever the case it may be, that does fall into place. Again, when you’re looking at it that way, there’s what they call a donor-advised fund. Essentially all you’re doing is you are taking a chunk of money, you’re putting it into this donor-advised fund, and you are utilizing that to be able to give money to charity at your discretion when you want to do that. Essentially, you control when you turn that valve off of. You control how much you give. You control who you give it to. It’s just once it’s put in there, that money has to go to a charity.
Again, a lot of times what people do is to, again, to make sure that they get the benefit of those contributions, is they lump a couple years together. They have a little money sitting in savings or a different type of an account. “I know over the next few years, I’m going to give X amount of dollars, so I’m going to take that, I’m going to put it in. I get the credit for that in the one year that I do that.”
Mike VanZuiden:
Yep, all the bigger credit, rather than year by year.
Nate Kreinbrink:
Right, so that may put me over what the standard deduction is in that year when I dump it all in there. Well, now I’m getting a benefit for every dollar that I’m going to give to it, whereas before, I may not be getting any benefit already up to where the standard deduction level is. Again, the big thing with that is you continue to have control over that. The money is still managed, the money is still invested.
The money is still controlled by you to say, “Hey, I usually give X amount of dollars to this charity over the next five years. Every year I’m going to give X amount.” Well, in year three, that charity disbands and they’re no longer there. You’re not tied into it. You can then say, “Well, they’re not there, so I’m going to give it to somebody else now.” It’s just you have to give that money to a charity, money that you were already earmarking for it. We’re just dumping it into this bucket in year one to get that tax benefit, and then looking to control it after that.
Mike VanZuiden:
Yep, and the key with that, of course, is then, to your point, Nate, that that money is not going back in your pocket, right? Once it’s there, it is earmarked specifically for charity, but for people that do some charitable giving, a fantastic opportunity there to take advantage, to your point, prior to age 70 and a half. When the qualified charitable distributions are not an option because you haven’t reached the appropriate age, that’s a nice tool to be able to take advantage of the charitable gifting.
Nate Kreinbrink:
Right. I think in any grand scheme of things, I mean, when people are gifting, they’re not necessarily gifting to say, “How much is this going to benefit me?”
Mike VanZuiden:
Right.
Nate Kreinbrink:
The grand scheme of it is if you’re already gifting, if you’re charitably inclined anyways, and yet I can give the same amount, which essentially you’re able to give more now because you’re not having to pay the tax. You can give a little bit more if you wanted to, but it’s costing you the same exact thing as what it would’ve when you were giving less.
Mike VanZuiden:
Over the long haul, yes. You’re going to win, and so does the charity.
Nate Kreinbrink:
Yes, and so does the charity. Again, if you’re already doing it, it’s just changing the pocket, the bucket that you’re taking it from, to give that to a charity. I know there’s a lot of different cases, Mike, that we can go into and get technical with some of them, but again, it’s not just the local charitable church that you’re giving it to, the local charitable organization or whatever it is. Again, there’s a lot of things that you can look at when you’re selling larger assets too.
Whether it’s, again, appreciated farmland is a big thing with it to say, “I bought this farmland 75 years ago and I have a basis that is very small, and that ground now is worth X amount of dollars an acre.” Well, if I don’t plan this out and have somebody navigate me through this, you’re going to be paying a lot of tax on that gain from what you sold or what you bought it from to what you are going to sell it from, unless you have some guidance. There’s some, again, charitable gifting ways that you can look to do that, where again, it benefits you, you have income from it, but yet we still have some of these benefits to a charity, wherever it may be.
Mike VanZuiden:
Yep, and that all comes down to your situation. The common theme on our show here, Nate, but it’s seek the advice when you’re in these situations. If you have something like this going on or things are crossing your mind, ask the right questions and get the right help.
Nate Kreinbrink:
Again, all good stuff. We are getting close to being out of time here, but again, this topic of being able to, again, look at what you are already doing and how can I maximize that. That’s what we’re looking at, whether it’s tax planning, charitable gifting, investing, how we’re invested, when we’re making trades. Again, it’s looking at it to say, “Okay, if I do this, I’m going to pay this in tax, but if I do this, I get the same result but yet I pay less in tax.” Let’s look at what options are out there, and this is exactly one of them as well.
Again, if you’ve got questions, give us a call. We’d be happy to sit down with you. Did want to mention real quick before we run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of April will be donated to the Veterans Affairs here in Clinton County. As always, Mike, appreciate you joining me today.
Mike VanZuiden:
Of course.
Nate Kreinbrink:
It will be May next time.
Mike VanZuiden:
Absolutely.
Nate Kreinbrink:
Nate and Mike, bringing you this week’s Financial Focus. Thanks for tuning in, and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged, and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.