With Giving Tuesday upon us, and the backdrop of local reminders that many people are in need of extra support, this seems like a perfect time to consider philanthropic goals and take a moment to review or design a giving plan. Charitable giving can be both personally rewarding and tax beneficial, but new tax rules in 2018 are significantly impacting the tax efficiency of gift planning.
A key tax law change affecting the benefit of charitable gifts is the new higher standard deduction, which along with new caps on other deductions has made it increasingly harder for itemized deductions to exceed the new standard. One strategy to combat this is “charitable bunching,” which we have been discussing with clients and also outlined in our April tax article, Five Actionable Tax-Planning Ideas. This concept of “bunching” is to combine multiple years of intended gift amounts into a single tax year, increasing itemized deductions that year enough to reach above the standard and thus creating a more beneficial tax impact from the charitable gifts.
One of the best tools to use for this bunching technique is a charitable donor-advised fund account. Funding this kind of charitable account with a larger gift amount in one year can facilitate the larger tax deduction, while still providing the flexibility for the donor to distribute chosen amounts to individual charities at self-selected points in time in the future.
The example we described in April is worth repeating: Consider a married couple with itemized deductions of $19,000, before including charitable gifts. If they plan to make yearly gifts of $5,000, none of each year’s charitable gifts would create a tax deduction—their total itemized deductions would not reach above the $24,000 standard deduction for married taxpayers. Instead, if they use this strategy of “charitable bunching”, the couple could group three years of gifts, or $15,000, in one tax year. This would generate total itemized deductions of $34,000, making the extra $10,000 of the charitable gifts now deductible above the standard. Then, the couple can still choose to grant their annual $5,000 to charities each year, along their typical donation schedule.
All tax and gifting techniques require careful forethought and planning. Our wealth management team is regularly on the lookout for new strategies and ideas to help guide in the establishment, modification, or monitoring of a tax-aware, impactful gifting plan. If you would like to discuss your charitable giving or tax–planning issues in more detail or have other year-end planning questions for your individual situation, please contact your Litman Gregory Wealth Advisor.
Our Thoughts on the Silicon Valley Bank Failure
Recent problems in the banking industry have increased uncertainty in the financial markets. On behalf of our clients, we have taken a close look at the situation and assessed the potential consequences. In this post we summarize the circumstances at Silicon Valley Bank that led to its failure, describe the broader implications, and review what we see as minimal impact for our clients and their portfolios.
Insight Newsletter—Winter 2023
Our Insight Newsletter is now available. Included in this edition: Investment Commentary Research Update: Trend Following with Managed Futures Tax Planning Opportunities from
Research Update: Trend Following with Managed Futures
The evidence of the long-term value that trend-following managed futures bring to a balanced portfolio is compelling, even though there are shorter periods where sharp see-saw patterns can lead to disappointing returns. However, in a year like 2022 that saw significant declines for both stocks and bonds, managed futures experienced large positive gains and were one of the only asset classes to provide meaningful downside protection. This research update serves to address many of the questions that we receive about this interesting investment strategy.