Give More to Charity and Less to the IRS

Today's Newsletter:

• Quote From Dave Ramsey

• Why I Never Give Away Cash

• What Is A Donor Advised Fund

• A Money Question

Quote

“Money moves from those who do not manage it to those who do”. - Dave Ramsey

I view money much like a river. The water never stops flowing but without dams, levees, and directional barriers you lose control.

Why I Never Give Away Cash:

One of the first things I was taught about money is that there are only three things you can do with it:

1. Spend It

2. Save It

3. Give It Away

That’s it, we make it far more complex than it needs to be.

Spending it is straightforward, saving it is a math equation, but giving it away requires a bit more. In reality, most people donate money and fail to realize they are also tipping the IRS.

I love the United States and believe we should all pay what we owe in taxes, but also think that tips are best left for your server at dinner.

Yet, when most of us donate cash we are doing just that, leaving the government a tip on our tax bill.

The reason is twofold.

First, the standard deduction, or the amount you can deduct against your wages is set at $27,700 for a family filing jointly in 2023. This means that if your “itemized” expenses such as giving do not exceed $27,700 for the year, you get the same tax break whether you gave away $1 or $20,000. Nearly 90% of families take the standard deduction each year.

Example: I decide I want to give away $20,000 per year. If I choose to do this yearly, I will tip the IRS. My $20,000 donation will have no net effect on my tax bill. Instead, I decide to bunch together four years of my $20,000 donations into a special giving account (more on that later). This gives me an $80,000 deduction on my tax bill AND still provides me the flexibility to give away $20,000 of it each year.

Second, giving away cash is the most inefficient form of giving. It is a 1 v 1 trade on your tax bill (assuming you give away enough in that year). Instead of cash, I always give away appreciated stock.

Example: I buy 1,000 shares of Apple stock in 2019 at a cost of $38 dollars a share. This $38,000 purchase is worth $160,000 today. This means that if I were to sell those shares I would pay taxes on a gain of $122,000. Instead of selling those shares, I decided to donate a portion of them. I donate 500 of my 1,000 shares of Apple to my Donor Advised Fund (more on that later). The government will credit me with an $80,000 donation even though I only used $19,000 to originally buy those 500 shares. It is a 4X trade on my tax bill as opposed to a 1 v 1 trade for cash.

My goal is to give more money to my favorite charities and less to the IRS (still love America). I do this by giving away bigger chunks in fewer years (avoiding taking the standard deduction) and by giving away appreciated stock instead of cash (multiplying my ability to give).

Keep reading to learn about the account I use to accomplish both of these things.

What is a Donor Advised Fund?

A Donor Advised Fund (DAF) is a special giving account that allows you to give more to your favorite charity and less to the IRS.

Remember how in my example above I bunched together 4 years of giving into one tax year?

A DAF allows me to get the credit on my tax return for giving away the money in that calendar year AND allows me to distribute it over an extended period of time. In addition, the money I contribute to a DAF can in turn be invested creating a bigger bucket of money to donate!

Example: Those 500 shares of Apple I donated are worth $80,000. This means that on my current year’s taxes, I would get an $80,000 tax deduction. Yet, once that money is in my DAF I DO NOT have to grant it out in that year. Instead, I can grant my yearly $20,000 donation to my favorite charity AND invest the other $60,000 to increase my future charitable impact!

Giving to charity is about the heart, not the tax benefit. Yet, if I can make a bigger impact on the charities I care about AND reduce my tax bill that is a win.

If you have questions about how you can maximize your charitable impact, send me an email at [email protected]

A Money Question?

What is the one thing you have spent money on in that past decade that has brought you the most joy?

Send me an email and let me know!

Work with Jacob

I help families navigating sudden wealth pay less in taxes, coordinate their financial life, and invest for the long run.

 JL Strategic Wealth Discovery Call

Until Next Time, My Friends

JL Strategic Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. JL Strategic Wealth provides investment advisory and related services for clients nationally. JL Strategic Wealth will maintain all applicable registration and licenses as required by the various states in which JL Strategic Wealth conducts business, as applicable. JL Strategic Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.