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How Meaningful Donations Can Save You Money

October 4, 2019 By Lauri Salverda, CFA, CFP®, AIF®

photo of yellow, bell-shaped flowers in front of a blue sky with mountains in the background

After the 2017 Tax Cuts and Jobs Act went into effect in 2018, standard deductions went up—but other deductions also disappeared. As a result, many donors no longer have a tax incentive to be philanthropic, and charities have been hit hard.

The changes to deductions are technical, but well worth understanding.

  • In 2018, the standard deduction was raised for single filers from $6,500 in 2017 to $12,000 in 2018 and $12,200 in 2019. Similarly, standard deduction for married filing joint filers went from $13,000 in 2017 to $24,000 in 2018 and $24,400 in 2019.
  • Although this appeared to be a good thing, it was combined with the limitation of State, Local and property taxes to $10,000 and the reduction of mortgage interest deduction to the primary residence (not cabins or second homes) and no home equity loans except those used for actual renovations completed on the main home.
  • Additionally, miscellaneous deductions were eliminated, which included tax preparation and investment management fees. These changes made it much more difficult for individuals to accrue enough deductions to itemize rather than take standard deductions.

Still, charitable donations can be a bright spot in itemizing deductions. Here are some tips to have donations make a bigger impact on your taxes:

1. Donate Appreciated Assets

Gift appreciated assets instead of selling stock or funds to give a cash donation. Most charities have the ability to accept stocks and mutual funds, especially if you give them a little notice. By donating the appreciated asset, you can claim the appreciated value as the donation value and the capital gains are not reported on your taxes.

2. Qualified Charitable Donations

If you are over the age of 70 ½ and must take required minimum distributions out of your pre-tax retirement account, those can be donated directly to a charitable entity. If you have all or any part of your required minimum distribution sent directly to a qualifying charitable organization, that withdrawal is not considered income to you. It will not affect your Adjusted Gross Income or be considered in the taxability of Social Security.

3. Combining Annual Donations into Every Other Year

If you were to combine 2 years of charitable contributions into one year rather than the same contribution every year, this can potentially increase deductions and save on tax payments.

Here is an example: Sam and Donna are married and are filing joint taxes. Their charitable donations are $10,000 per year. Their additional deductions for state and property taxes are $10,000 and mortgage interest is $4,500. Here is what their deductions look like in both scenarios:

Annual Deduction
Tax Year20182019
Charitable Deductions10,00010,000
Other Deductions14,50014,500
Total Itemized Deductions24,50024,500
Deduction FilingItemized DeductionItemized Deduction
Deduction Amount24,50024,500
Total 2-year Deductions49,000
Concentrated Giving
Tax Year20182019
Charitable Deductions020,000
Other Deductions14,50014,500
Total Itemized Deductions14,50034,500
Deduction FilingStandard DeductionItemized Deduction
Deduction Amount24,40034,500
Total 2-year Deductions58,900

This second scenario allows for an additional $9,900 of tax deductions over 2 years.

4. Combine Option #1 and/or #3 with a Donor Advised Fund

A Donor Advised Fund is an account funded by one or more individuals and is used to make charitable donations. Donors take a tax deduction in the year they put money or appreciated assets into the account and can then disburse the funds to charities over multiple years. This helps the donor make the most of their deduction, while supporting charities that may have a difficult time accepting a large donation one year and then nothing the following year. Additionally, you can still donate appreciated assets to a charitable organization if they are not able to accept stocks or mutual funds.

There are many options of places to set up donor advised funds. Local community foundations, such as the St. Paul Foundation, Minnesota Foundation, or Minneapolis Foundation, have a lot of knowledge of the good work charities are doing. If you know what kind of impact you want to make, but don’t have a charity in mind, setting up a donor advised fund at a community foundation can give you access to a wealth of information and charities that have been reviewed by experienced philanthropic experts.

A Donor Advised Fund is a great opportunity to educate our next generation of charitable givers. An example would be to let each family member choose a charity to which they would like to donate. Have them research what the charity does and discuss why it is important to them. If they are able to make a strong enough case, write the check and allow them to take it to the charity.

Another opportunity to educate our next generation of money managers!

Filed Under: Lauri Salverda, CFA, CFP®, AIF®, Philanthropy Tagged With: charitable giving, donor advised fund, philanthropy, tax changes

Budgeting for Philanthropy

July 1, 2018 By Lauri Salverda, CFA, CFP®, AIF®

When things get tight, many people get insular. That is, they cut ties and obligations with anything that doesn’t protect themselves, and their own. However, this is when charitable giving is needed the most. Don’t look at budgeting for philanthropy as an either-or situation. It’s not either I help myself and my family or I have money for charitable giving. It’s about getting smart in how to do both.

Make it a family value.

Charitable giving isn’t all about having a big budget. It’s about making an impact. You can incorporate volunteer work into your family’s set of values. Budgeting time is just as important; create a regular schedule of events that the whole family can participate in.

 

Be a transparent advocate.

Talk to people about their philanthropic giving. Ask about how they make charitable giving choices, when they give, how much they give (if you have that level of trust). These conversations connect you with causes you might not have heard about any other way. If you’re a transparent advocate for giving, even if you’re not able to give as much as others, you’ll be doing good for the world. Your word of mouth support of your causes (and even just giving as a way of life) may help someone you know prioritize it in their budget.

 

Work with percentages.

As you earn more income, ensure your charitable giving grows too. Think critically about how you can be generous; if your income decreases, can you donate time? Statistically, wealthier people actually tend to give a smaller percentage of their income to charity. This trend leaves the people who most benefit from the services that charities provide shouldering more of the burden. Those who have been or are currently in need know first-hand the benefits charities can provide. If you’re not currently or haven’t ever been on the receiving end, be extra generous.

Do the math.

The biggest change with the current tax laws is that the benefit for giving has been greatly reduced, except for those who donate a large amount. There are a few simple ways to work this system, if you can’t donate enough to qualify for the tax break every year. Save what you would be donating one year, and add it to the next year’s donations, bringing your total up to the threshold, just every other year. Or, better yet, set up a donor-advised fund which you can contribute to every year, or every other year, while still supporting you and your family’s causes annually.

Your giving is creating the world you want to see, the one you hope your children will grow up in! It teaches many beautiful things about the value of humanity. It’s definitely worth including in your budget.

Are you ready to prioritize charitable giving? We can help you stay philanthropic and reduce your tax liability through donor-advised funds.  Contact us today to start the conversation.

Filed Under: Blog Posts, Lauri Salverda, CFA, CFP®, AIF®

Changes for 2018 Taxes: What You Need to Know

April 15, 2018 By Lauri Salverda, CFA, CFP®, AIF®

The new tax laws that went into effect at the start of 2018 are making many paychecks a little larger and many people a little happier. The last thing we want, though, is to have this positivity take a turn at the end of the year. One thing many don’t know, or maybe aren’t thinking about yet, is how the decreased deductions and exemptions may impact your tax bill come April. It may turn out that you have a larger tax bill than in previous years despite lower tax rates. In this spirit, we took stock of some of the key points of the new tax law, so you won’t be caught off guard in a few months.

What we know for this year.

Changes to Individual Taxes

Tax Brackets – There will still be 7 tax brackets.

Top Tax Rate -For individuals is reduced from 39.6% to 37%.

Personal Exemptions – Drop from $4,050 per exemption, i.e. yourself and your dependent children, to $0.

Standard Deduction – Increase from $12,700 (Married Filing Joint, “MFJ”) to $24,000 MFJ; $6,350 (Single, “SGL”) to $12,000 SGL; $9,350 (Head of Household, “HOH”) to $18,000 HOH.

Child Tax Credit – Increased from $1,000 to $2,000 (for children under age 17).

Investments – Capital gains rates, the ability to choose which lots of investments are sold and net investment income tax will all remain as they are.

Education Funding – Student loan interest deductions up to $2,500 will remain; Tuition deduction of up to $4,000 will be retained; and American Opportunity Tax will remain at the maximum of $2,500 for 4 years (this cannot be used in combination with the tuition deduction).

529 Plans –  In 2018, will be able to be used for education costs from elementary education through college rather than just college, as it is currently.

Changes to Itemized Deductions

State and Local Taxes – Currently both state and local taxes are deductible. Starting this year, these will be limited to a combined $10,000 in 2018, including property taxes and state and local income taxes.

Mortgage Interest Deduction – Currently, up to a $1,000,000 in loans which can be up to 2 homes.  This will be changed to up to $750,000 in loans which can be on up to 2 homes.

Home Equity line of Credit Interest Deduction– Currently, interest on a home equity line of credit up to $100,000 is deductible under Mortgage Interest Deductions.  This will be eliminated in 2018.

Medical Deduction – Currently amounts greater than 10% of Adjusted Gross Income (“AGI”), are deductible, in 2018 it will be amounts greater than 7.5% of AGI.

Charitable Deductions – Currently up to 50% of AGI, will increase to 60% of AGI in 2018.

Miscellaneous Deductions – Currently the greater than 2% of AGI are deductible.  These will be eliminated in 2018.  (These include unreimbursed employee expenses, tax preparation fees, investment expenses, trust fees)

Casualty and Theft Losses – Currently, amounts greater than $100 and 10% of AGI.  This will be eliminated in 2018.

 

What will change in the longer term.

We don’t know what additional changes will come up at the close of 2018. Some of the above itemized deduction changes may shift again, or perhaps there will be more new shifts to individual taxes. We do anticipate a change in regards to alimony. Currently, alimony paid is deductible for the payor, and alimony received is included in income for the recipient. For divorces occurring in 2019 and beyond, this will be repealed.  (Divorces having occurred previously will retain these income modifications.)

We will keep you up-to-date as new information is published in the coming months.

 

What you can do to help yourself.

Take some time to read about the new laws, and consult with an accountant to help determine how the changes will impact you. The IRS has created a wonderful, user-friendly withholding calculator that we are recommending to all our clients and friends! Find it here: https://apps.irs.gov/app/withholdingcalculator/

If you have additional questions or would like to talk about the tax reform, call our offices at 651-294-0013. 

Filed Under: Blog Posts, Industry News, Lauri Salverda, CFA, CFP®, AIF®

Managing the Emotional Side of Finances

January 15, 2018 By Lauri Salverda, CFA, CFP®, AIF®

In our experience, one emotion new clients often bring to our first meeting is guilt. We have heard apologies from folks who think they should have made their appointment months ago, who feel they aren’t organized enough when they come in, and still others who are dwelling on past mistakes. Our first piece of advice in cases like this: acknowledge the emotions that are present, so you can manage them and move forward towards a more productive financial future.

An empowered financial future

While the title on our office door may say “financial planning”, we do more than just crunch numbers. We work with clients to replace their guilt with a sense of empowerment. Before we can make a solid go-forward plan, it’s vital that clients forgive themselves and move away from any negative emotions clouding their decision-making. It doesn’t matter what happened in the past; it can’t be changed. Instead, we help our clients learn how to focus on what can be done from this moment forward.

Easy actions make a big impact: Take Control of Your Finances

The way forward will vary some from person to person, considering individual goals, aspirations, history, current income and investments, and more. However, we have a go-to list of easy actions anyone can take to start on the right foot for the future. We can almost guarantee that after you make just a few adjustments, your feelings about your financial future will be better and brighter.

    • Automatically send money to savings. You won’t miss what you can’t see. Even a small amount going into your savings account every month will add up faster than you think.
    • Put pay increases towards retirement. Every time you get a raise, put that amount into your 401K. Your take-home income will look the same, and you’ll painlessly increase your retirement income. You’ll be amazed at how this small addition compounds over time.
    • Be realistic about spending. If debt is weighing on you, start a new monthly check-in practice. Always pay off what you spent that month, the interest, and a little more. If you’re not doing that, you’re spending too much.
    • Eliminate impulse purchases. If credit cards are causing your debt to rise, leave that card at home! If you have to make an extra trip to buy that special something not in your budget, or on your list, you’re much less likely to follow through.

Start today

If feelings of guilt, or hesitation, or uncertainty have been keeping you from your financial goals, its time to make a change. Take stock of what is preventing you from moving forward, acknowledge it and let it go! There are simple things you can start doing today that will alleviate feelings of being overwhelmed, unsure or unprepared. You can become an empowered, intentional person who is achieving goals and laying the groundwork for a bright financial future. We can help.

Filed Under: Blog Posts, Lauri Salverda, CFA, CFP®, AIF®

Holiday Gift Ideas from a Financial-Advisor Mom

December 1, 2017 By Lauri Salverda, CFA, CFP®, AIF®

No matter your religious or spiritual traditions, chances are good your family gives gifts during November and December — or gets barraged by ads talking about them. As a mom to four adult children, I’ve sometimes experienced a certain panic around finding the “right” gifts for my family, including my children, nephews, nieces, and other relatives.

In our busy society, it’s easy to default to buying gift cards or throwing last-minute toys on the pile. But as I got further into my career as a financial planner, I realized I could give gifts with a long-term impact instead. Rather than simply spending money, I wanted to go deeper and teach my kids the value of it. I realized that like many adults, young people need to be taught how to spend wisely. Delaying gratification, planning ahead, and being intentional are important values I wanted to instill in my family.

7 Holiday Gift Ideas from a Financial-Advisor Mom

If you’re feeling overwhelmed by the prospect of buying gifts this holiday season — or if you want gift ideas for any time of year — consider this list. It comes from my own playbook as a mom (who also happens to be a financial advisor).

Think about your family as you read. Is there someone you know who might benefit more from a long-term legacy than a short-term thrill? The ideas below will continue to serve the recipient long after the excitement of the holidays passes.

At some point over the years I’ve given every gift on this list with great success! Now it’s your turn.

Gift idea #1: Write a Blank Check for Charity.

Give kids a check with the “pay to the order of” blank so they can choose a charity to support. If it’s local, take them there to give the check in person. (You might consider making arrangements first with a contact there, so the connection can happen at a good time.) The trip will show your youngster what a great feeling it is to give to others. Experiences like this can create lifelong memories. Make it a tradition!

Gift idea #2: Invest in a Roth IRA.

If a young person has worked and has earned income that will receive a W-2, no matter the age or amount, put some money in a Roth IRA in their name (see minimum and maximum contribution limits). For those under 21, you can set up what’s called a custodial Roth IRA. This means you’ll manage it until the individual turns 21. Whether or not they see the value today, as the years pass they’ll thank you a million times over.

Gift idea #3: Set up a Brokerage Account.

To teach children about investing, set up a brokerage account and purchase one share of stock. Remember this isn’t about you: the company has to be one the youngster wants to watch over time. When I did this with my kids, they chose companies that matched their interests: Disney, Sony, John Deere, and Electronic Arts. Follow these steps:

  1. Start with a product, restaurant, service — something tangible that’s caught your loved one’s attention. (Bonus: This is a great opportunity to get to know your family in a new way. The bond that can form from this shared experience may surprise you both!)
  2. Do some research. You might have to dig to find out the parent company. Embrace the learning opportunity and do it together!
  3. Talk about the company. Figure out why it intrigues your child, and ask: Do they think it will continue to do well? Does it need to develop new ideas, change with trends, or does it serve an ongoing need? If the company has other products, how are they doing? Give your child some homework/research they can do on the company over the internet. Maybe they can even earn another share by making a persuasive argument.

Gift idea #4. Purchase a Stock in a Dividend Reinvestment Plan.

Another option is to set up a Dividend Reinvestment Plan (DRIP) directly with your selected company. These plans can provide advantages not available when opening a brokerage account, such as buying shares without paying a commission and automatically having the dividends reinvested in additional shares of the company.

While every company’s policy is different, there are many companies that offer free plans. Others charge fees or have minimum investments. Possibilities children may recognize include General Mills, Kellogg, 3M, Polaris, Toro, Johnson & Johnson, Foot Locker, and Dr. Pepper Snapple Group.

Gift idea #5. Play the Stock-Market Game.

Sometimes experiences make the best gifts. Bring fun and learning to your family by playing the virtual stock market through an experience from Best Prep, an organization founded to teach Minnesota students business skills.

For less than $15 per team, play for your choice of three, six, or twelve months. You pick the teams: cousins, parents versus kids, random pairings, family friends, or neighbors are all fun options. It’s up to you! (Note: This gift involves more advance planning, but the effort is worth it.)

If playing for bragging rights doesn’t appeal to your family, sweeten the pot by offering a prize to the winning team. Game winners receive imaginary money, but your prize can be anything you decide. Consider a monetary gift, or — my personal favorite — a gift to a charity of their choice.

Gift idea #6. Participate in a Microlending Campaign.

It can be great fun for older kids to make a decision as to whom they would like to lend money and for which projects. An excellent site is the nonprofit Kiva. For as little as $25, anyone can make a loan to a help people around the world create opportunities for themselves, their families, and their community.

Gift idea #7. Piggy Bank Sets: Share Save Spend.

This concept was started by a local Minnesotan, Nathan Dungan. Start younger children out with an allowance and three piggy banks. Label the banks Share, Save, and Spend. Shopping for the banks themselves can be fun (and if your kids like crafts, this paint-your-own piggy bank could be a great activity to do together)! You can adapt this gift for older recipients by increasing monetary amounts and replacing the “piggy bank” with setting up checking accounts.

For inspiration and family-friendly tips about these concepts, check out Share, Save, Spend: Money + Meaning. I highly recommend the site for young people and adults who are learning to understand the importance of money and the role it plays in our lives.

 

Now that you’re equipped with some new concepts to inspire your holiday giving, give one a try! Whether you use these “out of the box” or as starting point for your own ideas, you’re on track to give your loved ones the gift of deeper financial capability. I’m a firm believer that it’s never a bad idea to combine education with generosity.

As you decide what gifts you give this winter, I wish you and yours all the happiness that the holiday season has to offer. Happy gifting! Contact us >

Filed Under: Blog Posts, Lauri Salverda, CFA, CFP®, AIF®

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