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Tis The Season For Giving: 3 Charitable Planning Strategies Under the New Tax Laws

Eric Sajdak • December 13, 2019
Ah, its that time of the year. Tis the season for giving. In part because Christmas will soon be upon us, but also because many of us will be giving to charity and taking advantage of tax deductions. 

In 2017, with the passing of the Tax Cuts and Jobs Act (TJCA), the landscape for charitable giving did change. Here are three strategies that will help you maximize gifts this season.

1. Bunch and Skip

One of the core changes of TJCA was the raising of standard deductions for both individuals and married couples. The rise in the standard deduction has caused more than 90% of tax filers to simply take the deduction rather than itemize. Without itemizing, the tax benefit for charitable deductions has essentially disappeared. 

There is a lesser-known strategy that can sidestep this predicament called the Bunch and Skip Strategy. The idea behind this strategy is to save up contributions and bunch them in a given year. You then itemize deductions in the year you bunch the gifts.

For example, the Wells family contributes $5,000 per year to charity. Rather than making that contribution each and every year and missing out on the itemized deduction, it would make more sense to contribute once every 4 years. In the fourth year, they instead contribute $20,000 and are able to deduct it from ordinary income. 

Gifts directly to a charity and Donor Advised Funds (DAF) can benefit from this strategy.

2. Low-Cost Basis Stock

If you have stock in a taxable account that has appreciated significantly, it might make more sense to gift that stock rather than writing a check of equal value. 

Gifts receive a step-up basis but allow you to deduct the Fair Market Value.

Take this example. Say you have a stock that you bought 3 years ago for $5,000 but is now worth $20,000. Your marginal tax bracket in this example is 32%.

If you sold the stock and then wrote a check, you would have to pay capital gains tax. 

($15,000 of Profit x 15% Capital Gains) = $2,250 Less Going to Charity/Less to write Off

Alternatively, if you gifted the stock to charity, you would avoid capital gains altogether. This means more money going to your charity and less money going to taxes. It’s a win-win.

*Depending on your tax bracket, there may be an additional benefit to be had by avoiding the 3.8% Medicare Surtax 

3. Charitable Remainder Trusts (CRT) and Charitable Gift Annuities (CGAs

Before getting into this strategy, there is a caveat on the front end. CRTs and CGAs can be complicated strategies and require a lawyer, advisor, and accountant to be clued in on the discussion. This explanation is simply to help you become aware of them as a strategy.

In a nutshell, a CRT and a CGA:
  • Work like pensions and annuities. They have two parts to them 1. A living benefit that pays the gifter money for his/her life 2. A remainder value that gets passed on to the charity
  • Both provide a charitable deduction
  • Both remove the remainder value from the estate (and therefore eliminate any estate tax on those assets)
  • Reasonable withdrawal rates hover in the 4.5% - 5% range for both strategies

Because of the cost of setup, Charitable Remainder Trusts typically don’t make sense for assets <$250,000. For assets < $250,000, a CGA becomes a better alternative. 

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With any strategy surrounding taxes and your situation, the devil is in the details. Please consult your advisor and CPA before using any of these strategies. 

File at 62 vs. Delay: At What Age Do I Break Even on Social Security?

By Eric Sajdak, ChFC® • July 7, 2020
"If I delay my Social Security benefit, at what age would I breakeven versus simply filing at 62?" We field this type of question frequently from retirees. The Social Security system allows you to file anytime between 62 and age 70. At first glance, filing at 62 seems to make the most sense. After all, there are 12 months in a year and eight years between ages 62 and 70—That's 96 months of monthly paychecks that you wouldn't be getting if you delayed. However, you get penalized for taking your benefit early. Below is a diagram showing the penalties and delayed credits for someone whose Full Retirement Age is 66:

Fair Value, Now What?

By Tony Hellenbrand • June 30, 2020
Lately I’ve been getting asked how I was able to “Call the Bottom” in late March. I want to make something clear: I didn’t. If you go back and look at the article from March 16th or read the email I sent out to subscribers on the 26th, (pure dumb luck), I ran a bad case, a best case, and a base case valuation on the S&P 500. I arrived at a base case valuation of 2,950, and at the time the S&P was hovering around 2,300, so we started recommending clients initiate buying plans. These plans did not mean “This is the bottom” or “Go all in.” Far from it. Many of our clients were buying several days before the precise bottom, and several days and weeks after. Regardless of how clearly I try to make this point (that we simply were buying something the math said was likely cheap) this morning my inbox is chock full of people asking what I think about valuations now. Are we in a bubble? Is the market ahead of the fundamentals? Are we going to double dip? Will the market crash? Will we need a second stimulus? Maybe. I have no idea. Here’s what I know, when you accumulate all of the available earnings estimates and make a conservative estimate of fair value, you end up with a fair value of about 3,060 on the S&P 500. As I type this we sit at 3,080. Regardless of whether the number is 2,950 or 3,060 or 3,080 or 3,150, any way you slice it, we’re at fair value, now. Analyst Earnings Estimates:
stealth taxes

3 "Stealth Taxes" that Increase Your Tax Bill Without You Knowing

By Eric Sajdak • May 28, 2020
It is your right as an American to (legally) pay the least amount in taxes that you owe—nothing more, nothing less. But in recent years, Congress has made a concerted effort to shift the IRS code and levy you with taxes you didn't even know you were paying. We call these "Stealth Taxes." These changes are never talked about by your congressman (or woman). They lie deep within the tax code and can potentially cost you significantly unless you learn about how to avoid them. In this article, we cover three of those "Stealth Taxes" and what you can do to minimize or avoid them altogether.
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