Red Barn Financial Podcast Ep. 4 Ways to make Charitable Giving more efficient and money saving! To learn more about Red Barn Financial check out www.redbarnfinancial.com If you need our help, don't hesitate to reach out and schedule time with us.
Disclaimer: Information in this podcast is for informational purposes only and cannot be relied upon as financial advice. Everyone's financial situation is different and not all investments and financial planning strategies are applicable to all people. Consult your financial advisor for how information you learn may apply to your situation.
Transcript
Do you have a favorite charity you like giving to? Well, what if there was a way you can be more efficient with your giving, make a bigger impact and save yourself some money? This is Sean Moran with the Red Barn Financial podcast. I'm a financial advisor in Middle Tennessee, and I help my clients both here locally, as well as throughout the U.S. virtually. So today we're going to talk about giving the charity and how you might be able to do that in a more efficient way as I mentioned before. So generally, what we do when we want give to charity we write a check or we put money in an envelope or whatever. We give money to a church or we send money into the Red Cross or whatever our favorite charity is. When we do that, we get a tax deduction. So, if you were to donate $1000 and you're in the 22 percent tax bracket, you're going to get a tax deduction of 22%. Now, that is only if you itemize your deductions. Now in 2020, they allowed you to deduct a small amount if you didn't itemized. But generally, it's only if you itemize. So, if you're not itemizing, then you're really not getting the benefit of the tax deduction. And so, if you're giving $1,000 in a cost you $1,000, it's much more difficult to get than to give $1000 and it's really costing you, a little under $800. So, we want to do this as efficient as we can, and we want to do this in a way that we're going to help our charity as much as possible. So, there's a number of ways to do this and one of them is called a Donor Advised Fund. We will talk a little bit about that in a minute or so. But let's talk about maximizing the amount that you donate and getting yourself in a situation where you can itemize and use up those deductions.
So, one strategy is called bunching your deductions. And so, the way that works is let's say that you give fifteen thousand dollars a year to charity and your other deductions are about ten thousand dollars. That's $25,000 dollars. You're almost better off just taking the standard deduction because it's about the same amount. But what if instead of saying I'm going to give $15,000 dollars to charity in 2022 and fifteen thousand dollars to charity 2023 - what if I take that whole thirty thousand dollars and I give it in 2022 or you know, say maybe you can't do that. But why don't I forgo giving the fifteen thousand dollars this year and push that into 2023 and then give thirty thousand dollars in 2023?
Well what I'm able to do is take full advantage of my standard deduction and then the following year I'll have thirty thousand dollars of charitable donations as well as another ten thousand dollars of other itemized deductions. Now I'm able to fully itemize and get a benefit that's significantly more than what I would get if I did otherwise. So, bunching your charitable contributions every other year is a better way to go than putting them the same amount each year. Now, you might say to yourself. Okay, well, you know, what happens if I do that I give thirty thousand dollars to charity this year and then they're kind of counting on that and that could happen, right? Especially if the numbers are bigger and you're giving a significant amount of money to charity, they might count on that larger amount or you might just say, for whatever reason that you want to give an even amount every year, there is a way to do that, and that is using a Donor Advised Fund.
So what this is like is a brokerage account or bank account. Now if you're going to use a bank, I'm going to give you a little tip here, some banks will charge a fee, and if the fee that you're getting charged on that account is going to be higher than the interest that you earn. You might want to think twice and try somewhere else. Some banks won't charge a fee, some do so you want to make sure before you set it up, what the fee is understand that and decide whether or not to go forward based on what the fee costs. Now Assume instead you go the brokerage account either one could make sense to you, but let's say you go to brokerage account and you put your thirty thousand dollars that you're going to give over the next couple years into that Donor Advised Fund and then you're going to make investments or leave it in cash your choice. And if you put it in investments and those investments perform, well then the charity is going to get a significant amount more. Now you can put your thirty thousand dollars in my example into that Donor Advised Fund in year 1 - call it 2022 right now and you can take a Deduction for that without even Distributing it to the charity, or to any charity.
At that point, you might be thinking, well, how is that possible? Well, as soon as you transfer it into the Donor Advised Fund, you do not have the ability to take that money out. That is considered a completed gift. And even though the charity of choice, has not been selected yet, you can still take the deduction, then you have the ability to go to that custodian and say, hey, I'd like ten thousand dollars given to this charity $5,000 to that charity. However, you want to do it, you nominate these Charities. And then as long as it's a qualified 501(c) (3), and it's qualified as a charitable contribution, then the Donor Advised Fund custodian will in turn, give that money to the charity of your choice. And so, this is a way that you can potentially balance, both, you're giving in a particular year and giving to the charity at a ratable amount over time. So, you can take a bigger tax deduction because you've completed the gift and you can still give the money to the charity in the way that you want and you saw fit. This can also be done in such a way that helps reduce Required Minimum Distributions (RMDs). If you're in retirement, if that's something you want to hear more about, let me know in the comments. I hope you also take some time to rate this podcast, I'd greatly appreciate that and share with others that might benefit from this. And if you're interested in hearing about this more in depth, how it can help with our RMDs and retirement by all means, let me know. And I'd be happy to talk about that in depth in a future episode. So, thanks so much, we'll talk to you. The next one.
You can contact Red Barn Financial at 615-619-6919 or visit us on the web at www.redbarnfinancial.com
