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 representatives securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member of 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 Kreinbrink joined this morning by Andy Ferguson with NelsonCorp Tax Solutions. A little bitter cold driving up today. You and I were talking, you were on a couple of weeks ago and we were talking to end of the year planning. We’re getting close.
Andy Fergurson:
Yeah, it’s happening. It seems like we’ve had a lot of appointments the last couple of days, as we talk about getting those last pieces in, those contributions that have to be made to the 401Ks and stuff like that, as we get ready to do the end of the year. So all those things that are time-sensitive, that have to be done by the 31st, that’s what we’re doing right now. For the next two weeks we’re going to be spending a lot of time trying to make sure that everybody’s taking full advantage of every opportunity out there to make sure their taxes are as low as possible.
Nate Kreinbrink:
Right. And I know the last time you and I were on together, we kind of hit Roth conversions pretty heavily. And obviously those play an important part in a lot of the things in what you’re doing right now. Contribution part, one area that I think oftentimes gets overlooked, and I still think there’s opportunities out there for individuals yet to take advantage of in the calendar year, is charitable gifting. And as so much other things this year, charitable gifting has kind of had an interesting path. It’s probably no surprise that first quarter charitable gifts, we saw them fall. Obviously the pandemic kind of taking hold, people looking to see how they were going to actually be impacted financially from that pandemic. But from that point on, as financial markets began to stabilize, people had a little bit better idea. Charitable gifting continued to rise throughout the year. And I think it’s important to note that gifts of under $250 also saw a whopping increase of roughly 20%, I believe it was throughout the calendar year.
Nate Kreinbrink:
So again, as the need continued to arise, so many people I’m struggling, charitable organizations really having the need to be able to support it, people stepped up to the plate. And again, if you haven’t done that yet, there still are some opportunities that people can still take advantage of yet this year.
Andy Fergurson:
Yeah. So in 2018, when the change from the tax cuts and Jobs Act happened, itemization changed a little bit. And that used to be where you got your charitable gifting deduction. And so because the standard deduction increase, a lot of people didn’t find themselves taking advantage of itemizing because there just wasn’t enough deductions there. And so what we’ve seen over time is that the last couple of years, as people come to us and report their taxes, they don’t include anything regarding charitable giving because they know they can’t itemize.
Andy Fergurson:
Well, there’s a couple of things to remember about that. First of all, if you live in Iowa, you, you should always report that to your tax preparer. Because if you live in Iowa you may still be able to itemize on your state form, even though you don’t itemize on the federal form. But more than that is there was a change this year in the CARES Act. You mentioned that there was an increase in giving towards the end of the year, and I know a lot of the smaller gifts where people are given around $250 or less, those gifts are going up, and that number is still important even on the federal level. Because in the CARES Act, the legislature provided an opportunity for people to take advantage of giving at $300 above the line, which means that they don’t have to itemize in order to take advantage of that $300 deduction. So you can save yourself a 30 to a $100 on your tax bill just by telling your tax preparer that you did indeed give some money to the church or to a charity or to whatever it was that you did. Don’t think that it’s not important to report those those gifts.
Nate Kreinbrink:
Right. And I think that’s an important thing for people to realize. And again, we still do have some time, so if you haven’t given that $300 yet, and you want to take advantage of having that deduction above the line, as Andy mentioned, make sure you keep track of that. And again, up to $300 as part of the CARES Act that was passed by Congress back in March. You are still able to do that. Another interesting part, and I think, again, people don’t realize that they’re able to take advantage of this, and that’s qualified charitable distributions. So essentially what we are doing with this aspect is directing money from an individual retirement account. So an IRA. Once you hit 70 and a half and directing that money directly to charity. So again, explain kind of how people should look at that and how they can take advantage of doing that qualified charitable distribution.
Andy Fergurson:
Sure. One of the things that happened with that qualified charitable distribution, we call them QCD. One of the things that happened with QCD, when those first started the age was 70 and a half. And that was also at the time, the age of a required minimum distribution. And so a lot of people associated the QCD benefit with RMD, meaning you had to BR in RMD, which was required minimum distribution in order to take advantage of that QCD benefit. But the cares act moved that RMD age to 72. It did not move the QCD age. And so now at age 70 and a half, you can make these charitable contributions.
Andy Fergurson:
The way it works is you have to make sure that that contribution or that donation goes directly to the charity from your retirement account. It cannot come from the retirement account, be put into your bank account, and then go to the charity. If it goes into your bank account, it’s taxable. If it goes directly to the charity, it’s not taxable. And so it’s important to talk with your financial advisor or whoever manages your IRA, if that’s something that you want to do to take advantage of moving that money directly to the charitable organization.
Andy Fergurson:
The other thing that’s interesting about that is it’s not limited to what your RMD is or would be. Obviously there’s no RMD in 2020, but some people think that that charitable contribution is limited to whatever their RMD would have been, and that’s not the case. You can donate up to $100,000 per retirement account. Or I’m sorry, per individual on your tax return by QCD. And so there’s an opportunity there, especially for people who are already charitably minded, the people who are giving money to their church every year, or who have their favorite organization that they give money to always, no matter what, they’re not doing it for the tax deduction, they’re doing it because they love that organization. If you’re 70 and a half and you are that type of person, you should be using your QCD opportunity, because there is absolutely no reason not to do it. And again, it’s an opportunity to take advantage of distributing that money without it being taxable. And it doesn’t matter if it exceeds the itemized deduction limit. You can do $500 and it will be … You could do $100 and it will not be taxable to you if you do it through QCD.
Nate Kreinbrink:
Right, and I think that’s an important point that you’ve brought up there is that … We’ve heard it from some of the people that we’ve worked with is, as part of that CARES Act, then not having to take out that required amount this year. So why would they want to do that? Well, if you still want to do that QCD to a charity, it possibly will reduce your individual retirement account, which hence then next year when you have to start taking money back out again if you’re over that 72 limit, it could reduce the amount in there, and then hence reduce the required minimum distribution that you would have to take out then next year.
Andy Fergurson:
Yeah. It’s interesting. With those required minimum distributions, we tell people all the time, if you have money in a tax deferred IRA or a traditional retirement account, when you take that money out you’re going to have to pay tax on it. Well, QCD kind of spits in the face of that a little bit, and it’s a way to get that money out without paying tax on it. And so if you are somebody who’s already giving, it’s a great opportunity to take that money and not pay tax on it. Essentially you get to give the church, or the humane society or the Salvation Army the same amount of money, but you don’t pay taxes on it. And so in essence, you’re doing them a favor and you’re in a better tax situation for yourself.
Nate Kreinbrink:
Right. I think these are all great conversations. It’s fun sitting down and showing people some of these things, especially when they had no idea that this was even an option for them to take advantage of. And when you sit and kind of put these steps into place for them and show them directly how it’s going to take place, it’s fun. And again-
Andy Fergurson:
You make a difference.
Nate Kreinbrink:
You can. And they’re already giving money to a charity. How can we maybe take it from a different bucket and then give that same money to them and have them … Again, they’re not doing it to help themselves, but essentially they’re able to give that money to a charity also helping themselves as well.
Andy Fergurson:
Yeah. It’s a great advantage. And the charities, especially this year, they really need help. Everybody’s hurting this year. Everybody is struggling. And these not-for-profits are the ones that are trying to help make ends meet for people, or help them bridge the gap until things look better. It’s an awesome opportunity, and if you’re somebody who has at least what you need this year, you should think about taking the opportunity to help somebody.
Nate Kreinbrink:
It is a tremendous year, and good to see. I know NelsonCorp has been able to facilitate numerous charitable initiatives over the past 12 months, most notably and most recently our annual toy drive and food drive, and seeing the amount of support that we’ve gotten from people. Our office lobby was completely filled. We had our night up at the Symphony of Lights. We filled up a whole truck load of food, couple truck loads of toys and take them down there. So again, the support this year has been generous, has been overwhelming. But there is that need out there, and it’s great to see people stepping up.
Andy Fergurson:
Yeah. It’s amazing to see all those people that … The world’s still got a lot of good in it. As far as, as bad as it is in our lives right now, or as bad as it is in society, there’s a lot of good people still.
Nate Kreinbrink:
There is. I did want to mention … We are out of time, but want to mention real quick that every Friday, NelsonCorp Wealth Management wearing jeans for charity. Money raised in the month of December will be donated to the Share Our Sandwiches program, sponsored by the Sisters of St. Francis. Andy, as always, time flies when you’re up here, but I appreciate you joining me this morning. Again, Andy Ferguson, with NelsonCorp Tax Solutions, Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again 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 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 representatives 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. For more information, visit our website at www.NelsonCorp.com.