Resources for Anesthesiologists2021-08-20T20:23:56+00:00

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Tax Effective Charitable Giving – Short Videos

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The summary below has been created by a professional transcription vendor upon review of the recorded presentation. Please excuse any typos as well as portions noted to be inaudible.

Patrick Runyen. I’m a principal and wealth manager at Modera Wealth Management. In this video series, we’re going to be covering the various strategies for tax effective charitable giving. So to start out, why give to charity in the first place? And that the reason I say it that way is a lot of times we’ll get folks that come to us and say, should I be giving to charity for tax reasons? And I always explain that the only reason you give to charity is because you want to make an impact, or you have a desire to be charitable for family values, reasons, or religious reasons or whatever the case may be.  But you don’t do it for tax reasons because you’re still out the money. So you’re doing some good and you’re making a sacrifice in a way. However, if that decision has already been made, that you do want to make an impact and you do want to help, um, in some way, shape or form with a charitable organization financially, then there are more tax effective ways to do it than others.

So for when we cover these strategies, just remember that it’s not an absolute certainty that you want to be giving to charity for tax reasons. Um, it’s much more that if you’re planning on giving to charity, you’re want to do it in the most tax efficient way possible. So to start the normal way people give to charities is through cash. Um, there’s lots of reasons for that, but frankly, it’s very easy. So, uh, if you have money on your person or you have money in the bank and you write a check to your, uh, your house of worship, your, uh, local charity, the SPCA, whatever it is, it’s very easy to do that. And you can make an immediate impact, right? It feels good to put the money in the jar, uh, with, with, uh, the salvation army during the holidays. And there’s a tax benefit if you keep records and, um, it’s a legitimate charity that you’re giving to, uh, you may be eligible for a deduction on your tax return through your itemized deductions, which we’ll cover.

So that’s a perfectly reasonable way to do it. The problem is that you may be forgoing other benefits by just doing cash. And what I hope to do in this video series is show you some of those ways at a very high level. So the strategies that we’ll cover in the next few videos, we’re going to start out with a donor advised fund. These have come into focus in the last few years because of some recent tax law changes that happened that limited most folks ability to itemize their deductions. So we’ll talk about that in the next video, the video, after that we’ll discuss donating appreciated securities. This is the idea of donating maybe stock or mutual funds or ETFs or, or other securities that are not cash and maybe getting a bigger tax benefit from doing so. And then the third is donating from your IRA. And this is during the time when the government requires you to begin taking distributions from those IRA or 401k accounts, there’s a way that you can leverage giving that you’re planning on doing and the amount that has to come out of those plans, um, and lowered the amount that’s ultimately subject to tax.

So in these future videos, we’ll cover all of those and look forward to seeing you in the next session. Thank you.

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The summary below has been created by a professional transcription vendor upon review of the recorded presentation. Please excuse any typos as well as portions noted to be inaudible.

Hi, and welcome to tax effective charitable giving part two. My name is Patrick Runyen. I’m a principal and wealth manager at Modera Wealth Management. In this section, we’ll be discussing donor advised funds. So in the introductory video, I mentioned that donor advised funds have become a lot more popular in the last few years due to some recent tax law changes. So let’s start out and determine what is a donor advised fund. Well, the way I like to describe it is, think about any account that you own that holds assets, whether it be your bank account, an IRA, a 401k at work, whatever the case may be. The donor advised fund is the charitable version of that account. So these accounts have particular tax benefits where you can put assets into them and you get an immediate tax benefit by doing so. The trade-off is that you are, um, giving up access to those funds permanently.

It’s an irrevocable charitable contribution. The benefit to these funds though, is that you don’t ultimately have to commit to who your, the organization or the group that you’re giving that money to over the long run. So it acts as a bit of a holding spot for future charitable giving. So donor advised funds by definition, when money goes into them, a charitable contribution has been made. Okay, but you still have control of the funds. You can’t take them back into your possession, but you can invest them, manage them within the, within the actual account. And then as you see fit along the way, donate those funds to particular charitable organizations. So, um, let me tell you, I think the best way to describe this is through a quick story.  Had a client, a very successful, who worked in a family business.

There were no other children that wanted to continue on in the business. So he explored selling his business and eventually found somebody to purchase it. He walked away with about $20 million in that year. So,  given that this was a long held business, there was a significant tax implications to that transaction. And we discussed how are there ways to offset the tax? And one of the things that I always knew about him is he was very charitably inclined though. He didn’t take the time while he was working to really determine what that meant. So what I asked him to do, and what we did in terms of modeling was determined. What amount was he comfortable committing to charity today, knowing that he can always make the decision on who the charitable organizations that ultimately benefit from these funds will be down the road. He does not have to make that decision today.

So we explored opening and eventually funding a donor advised fund, and he ended up doing it for a significant amount of money and saved roughly $750,000 in taxes in the year he sold his business. So the, the neat thing for him was, and the really the selling point was he could fund this, this, this staff and not have to commit to giving it to a charity. And now he and his family are still determining, you know, what type of impact they want to make along the way. So it’s a great spot to, to hold assets that you all you’re comfortable committing, but don’t have the actual organizations in mind of who you want to give it to. So again, there’s an immediate tax deduction.  It allows for multi-year charitable planning. So the tax change that made this more popular, was when the government a couple of years ago increased the standard deduction and also reduced, uh, some itemized deductions.

So what ended up happening were folks were maybe giving to charity at a few thousand dollars a year, but because the standard deduction on their tax return was so high, they didn’t have enough in the way of itemized deductions for it to give them any type of tax benefit. So what a lot of folks are doing is instead of just giving to charity in the same way, they always have, they are taking a sum of money, putting it strategically into a donor advised fund, and essentially pre-funding three, four or five years of future gifting that they plan to do to charities and why, when they do that, what we call bunching of deductions, they put all the money in, in one year, they overcome the standard deduction and get a tax benefit for the charitable giving. And then they still distribute it to the charities as they always have in the same increments to just make sure that they’re getting a tax benefit for doing so.

So what can go into a donor advised fund? A lot of assets, um, cash can obviously be used, but there’s also other assets that are listed here. The one that I’ll point out that we’re going to speak about next time is appreciated securities. Um, so that means something that you purchased previously. That’s a capital asset, think of a stock, a bond, a mutual fund, an ETF, and it’s risen in value. And you can use those assets to fund the donor advised fund and ultimately benefit a charity down the road. So we can talk about that a little bit in the next section, but just know that donor advise funds are a very flexible vehicle to pre-fund future giving and give you an immediate tax benefit in the year of contribution. So in the next section, we’ll talk about it, appreciated securities, look forward to seeing you then thank you.

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The summary below has been created by a professional transcription vendor upon review of the recorded presentation. Please excuse any typos as well as portions noted to be inaudible.

Hi, my name is Patrick Runyen, principal and wealth manager from Modera Wealth Management.  We’re now in part three of the tax effective charitable giving video series. So we’re going to be discussing giving assets that we consider to be, or we’d like to call appreciated securities. So just to review what that means, um, the easiest example to use, isn’t it a marketable investment. So think about a stock, a bond, a mutual fund, et cetera. Um, you’ve purchased it outside of a retirement account and you’ve established what we call a cost basis. So you’ve purchased it and over time that investment has risen in value for one reason or another. So now you sit on what’s called an unrealized capital gain. If you were to sell that investment, you would ultimately pay tax on the gain portion of what you sold. Okay. So the neat thing about charitable organizations, there’s lots of neat things, but the neat thing about charities is that they don’t pay tax.

They’re not subject to income tax along the way. So what this enables us to do is instead of giving cash to a charity, we can give a security that’s appreciated of the same value, give it to the charity. And they ultimately benefit in the same way as receiving cash. And what does that do for us? Well, it gives us the ability to not only receive a tax deduction potentially on our tax return, but also move out a unrealized gain off of our balance sheet, our personal net worth and give it to the charity and not have to pay tax on that gain. So let’s go through a quick example to, um, to further solidify this concept. So as you can see here, we have the idea of buying us an investment. Let’s say we bought Apple stock. Um, and we pay, we bought a hundred shares when it was trading at $50 per share.

Well, what we paid or a principal and sometimes called cost basis for that, for that stock is $5,000. So at that time we purchased $5,000 worth of Apple stock and Apple has done tremendously well. And now we sit here today, a number of years later, and we are sitting on a, uh, $250 share of Apple, um, and considering a hundred shares. We now have $25,000 worth of Apple. So we’ve realized we have an unrealized $20,000 gain if we were to sell that and just to make the numbers easy. If we were in the 20% long-term capital gain bracket, we would owe $4,000 of tax on that gain. So really we didn’t have 25,000. We had 21,000 after tax. I’m still a great, a good outcome, but let’s say you decide in a particular year that you want to give $25,000 to charity. And your immediate thought is why don’t I go grab $25,000 of cash and send it to the charity?

Well, what I encourage clients to do and consider is instead of that, think about some of the holdings in your investment portfolio and use that same $25,000, send it to the charity. And now you’ve avoided the capital gain on that increased position. So in this case, if we were to use this Apple stock worth $25,000, we would have avoided a $4,000 tax bill for the long-term capital gain if we were to sell it. And in addition, we may be eligible if we’re itemizing our deductions to receive a tax deduction on our current year tax return in the year the, the donation was made. So in that case, you’re saving almost $10,000 in this example, by using an appreciated security, as opposed to cash. And remember from the charitable organization standpoint, they’re indifferent about which charity, which type of security they receive. So most organizations that I’ve I’ve worked with over the years, um, are able to receive, uh, appreciated securities as opposed to just cash. It’s always worth checking, but, even churches, synagogues,  smaller charities, they, they typically all have the ability to receive these types of securities, in lieu of cash. So I hope that’s helpful. Keep that in mind, as you do your charitable giving and the last section, we’ll talk about utilizing distributions from retirement plans as another effective way to give. Thank you.

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The summary below has been created by a professional transcription vendor upon review of the recorded presentation. Please excuse any typos as well as portions noted to be inaudible.

Hi, my name is Patrick Runyen. I’m a principal in wealth manager at Modera Wealth Management. This is part four of the tax effective charitable giving video series. In this last section, we’re going to be discussing making contributions to charity through your required minimum distribution. So as many of you may know, um, we receive tax benefits from utilizing retirement accounts, such as IRAs and 401ks, et cetera. And for those tax benefits, the government has essentially instituted a rule that says we have to start taking distributions, whether we want them at not, or not at a certain age, historically that age has been 70 and a half. That’s recently changed for folks that haven’t reached that age yet to 72. But for this strategy, the, the age that’s still to keep in mind is 70 and a half. So I use a quick story to explain the concept. I have a client who’s very high net worth has done very well throughout his life and is obsessed with keeping his tax bill as low as possible.

Even though it doesn’t matter, it’s become basically a game to him and he’s very charitable and he has always thought about giving and, and, um, itemizing his deductions to take advantage. Well, some of the recent tax law changes, coincided with him turning the age of 70 and a half. And he thought, you know, I I’m, I’m losing some of the ability to, to get a tax benefit to give to charity. So one of the things that I discussed with him was modeling out what’s called a qualified charitable distribution. So the way these work is at the age of 70 and a half, um, in this case, the, uh, he was required to take about, uh, about $40,000 from his IRA, even though he didn’t need the income. However, he was planning on giving about $25,000 to charity that year. So instead of just writing a check out of his bank account or giving appreciated securities, we ran the numbers and found it was more beneficial for him to reduce his required minimum distribution from 40,000 as cash to 15,000 with the 25,000 going directly to charity.

And what that did because it reduced his income was actually had a greater impact tax wise for him than just giving and taking the itemized deduction. So this is a great way for folks that don’t necessarily need the required minimum distribution from their retirement account in order to live, if they don’t need it. This is a great way to give to charity. If you were already intending to do that, RMDs are one of the things that you are really inflexible that you really don’t have much option with. This provides a great outlet for those that are charitable. So, um, the QCD, the thing that a couple of notes to just to consider the QCD must go directly to the charity. You can’t receive the income from your IRA or 401k, and then give to charity that won’t count. So you have to do it directly towards charity.

A lot of retirees like this because it reduces their income and that may help them in regard to Medicare, uh, that the surcharges that go along with certain parts of Medicare, as well as how much of their social security may be taxable. So it really is a reduction of income as opposed to an itemized deduction and in almost all cases, that will be more beneficial to the user. So if you’re receiving required distributions from retirement accounts, consider using that to give to charity as opposed to other means, because it may be more beneficial. So I appreciate you going through these videos with us. If we can ever be of help, please feel free to reach out and best of luck in your giving future.

Thank you. Take care.

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