Scott and Pat combine forces to explain the tax advantages of a Charitable Giving Account.
Scott: We're talking with Bob in Northern California. Bob, you're with Hanson McClain.
Bob: Hi, guys!
Scott: Hey, Bob.
Bob: I have a question for you if I can about the tax deductibility of a Charitable Giving Account that's available through a major brokerage account.
Scott: Got it. Now, by the way, Bob, we're going to answer this question as it relates to current tax law. Yes. Because in 2017, we would expect there'd be some changes. I mean, there's been talk for years and years now of having a major...
Pat: Of limiting the deductions...
Scott: ...but this year there’s a pretty good chance we're going have some changes. Anyway, go ahead with your question.
Bob: Right. I'm not at the point that I have to do RMDs or Required Minimum Distributions from the IRA account yet. So my question is basically, I do have some funds, not in the IRA, which I don't want to withdraw at this point in time. But can I take those funds from my brokerage account, a regular non-IRA brokerage account, contribute them to the Charitable Giving Trust and have that deducted from my income for income tax purposes?
Bob: That's the question.
Scott: Most likely. So you can donate an appreciated asset, which is what it sounds like you’re talking about doing. You've got some stock or mutual funds you're thinking of donating. Well, if you donate that, whatever the current... As long as you've held it for at least 12 months, whatever the current market value is, you can take a tax deduction on that. It is an itemized deduction, and it's limited to assets of up to a maximum of 30% of your adjusted gross income. So, if in the unlikely event that you're going to give 30% of your income away, but it happens, sometimes you see a sale of a business or property in...
Pat: But you have to... You actually have to itemize on your tax return to get this because the standard deduction, it doesn't help you.
Bob: It's part of the standard deduction?
Pat: No, no. If you are not itemizing, it doesn't matter. So do you itemize on your tax return now?
Pat: Okay. Well, then it matters.
Scott: Then you get the deduction. Unless there's something unusual that we don't know about your situation but...
Pat: And remember, you can buy that position back in your portfolio immediately after you give it away. So I've had clients that say, "I don't want to get rid of that," and we say, "Well, it doesn't much matter."
Scott: Bob, did you say you're currently taking Required Minimum Distributions, or you are not?
Bob: I am not, a couple of years away from that.
Scott: Okay. Because when you hit that... Because under current law, you can take your Required Minimum Distribution and have it go directly to a charity and not include it on your taxable income up to $100,000.
Pat: Scott, can you have it go to a donor-advised fund?
Scott: You cannot have it go to a donor-advised fund. It can only go to a charity.
Pat: Charity. I knew the answer to that; I just wanted you to say it.
Scott: Thank you, Pat.
Pat: So, that's a big deal there, right? Because while the donor-advised fund actually works in a brokerage account or a highly appreciated position, it doesn't work for the... If you want to take the money from your IRA, the RMD and push it into, you have to give it to a charity. It can't go to a donor-advised fund.
Bob: Correct. But the charity has the brokerage account. Charitable giving account through the brokerage account.
Scott: Which is a donor-advised fund.
Pat: Which is a donor-advised fund, it's not a charity.
Scott: Like Fidelity Gift Trust, or Schwab's got one. They all have...most of them have one.
Pat: Okay. We're all on the same page?
Bob: Yep. It's something like that, but you know, the question I guess is, even though it's going into the charitable giving account, can I deduct that on my income tax?
Pat: Yes, absolutely.
Scott: Yes, absolutely. That's the whole point of it.
Pat: And both Scott and myself have used Charitable Giving Accounts for years and years and years. I'm a huge advocate of them. First of all, it makes your life easier. If you're charitably inclined at all, even if you're giving away small amounts of money, as long as you hit the minimum, it just makes your life easier because you can go online... Well, I'll give you a perfect example. Scott's son called me two years ago and said, "Mr. McClain, I'm involved in this youth in government," which scared me a little bit because he sounded a little bit like a politician calling me and asking for money at the age of 17.
Scott: Yes, that's kind of it. That's pretty much it.
Pat: And he said, "Well, you... Could you help us out?" So I said, "Absolutely!" All I did was go online. I said, "Just give me the tax ID number." I just went online in my Charitable Giving Account, typed the tax ID number, put the dollar amount, boom!
Scott: That's very generous of you, Pat. I appreciate that.
Pat: He's your son.
Scott: Hey, Bob. Here's our recommendation, though. It's the beginning of the year, January, wait. If there's a charity that has a need today, that you want to fund, wait. Great. Or you think it's a good time to liquidate this position, I'd do it today. Otherwise, I'd give it some time. I believe there's going to be some changes in the tax law, and we don't know what it’s going to look like later. So... All right?
Bob: Good deal.
Pat: All right. I appreciate the call.
Scott: Appreciate the call.