Retirement Tax Planning: How to Maximize Deductions for Charitable Donations in Retirement

How do I maximize the tax deductions I can receive for my charitable donations in retirement? What retirement tax planning strategies can I use? Are there other ways I can distribute my charitable donations in retirement? In this video, we speak with Jessica Cannella, who discusses the most efficient strategies to maximize your tax deductions for your charitable donations.

Going In-depth:

Jessica Cannella: Hi, everyone. This is Jessica Cannella, Co-Founder, and president of Oak Harvest Financial Group. Happy holidays to you and your family. My partner and I, Troy Sharpe, Co-Founder, and CEO, we felt that it was a great time to reach out regarding an important topic that we know many of you are probably thinking about during this season, in particular. Now, there are plenty of good reasons to consider charitable giving, gifting, as we know many of you do. When doing so, we want to be as strategic and smart as possible while still maintaining our ability to help others. I’ll cover briefly a number of issues in this video surrounding charitable giving done right.

This includes our Oak Harvest core values and holistic planning approach, strategies for charitable gifting, a list of Houston area groups that we work with, where you can help and see your charitable dollars at work, and a great resource for the new year, including key retirement dates for 2023. You’ll definitely want to watch to the end to make sure you grab this important resource. I’m sure that right now many of you’re in the midst of preparations for your holiday season, and it’s definitely a time to say thanks for family, friends, and the people that have been placed in our lives, and for the good fortune that we’ve experienced through hard work and smart saving habits, we’ve built into our lives.

This includes seeking the help of professionals to assist us in creating holistic financial plans that service going forward in terms of meeting the life, retirement, and altruistic goals we’ve set for ourselves. For many of you, it’s also a time when we recognize that there are countless people who are not so fortunate. A time when we wish to give back and help others around us by maybe volunteering and through charitable giving or gifting, be it during this season or spread across the year. If gifting is on your heart, this is the time of year that we really want to dive deep into that conversation because there are a lot of tax advantages to gift wisely. Tax deductions aside.

Giving in and of itself is a wonderful spirit to have especially in the holiday season. As good and as decent as your desire to help others is, it can be tough to do and we often aren’t sure where to start and in a manner that is truly meaningful and impactful and in a way that is smart. Well, good news, we can help you with that. At Oak Harvests, we view charitable giving as one of our core values. We know that charity and giving are major concerns for many people.

Giving of your time, money, and other resources is something that we hear about from our clients all the time and our employees, and not surprisingly, charitable giving and other altruistic endeavors are major financial goals that we are frequently asked to incorporate and sometimes prioritize into our client’s financial plans. Overall, our view of strategic charitable giving is an important approach that enables you to help serve those that are less fortunate, while also providing yourself with maximum benefit in terms of tax savings.

Let’s talk about some charitable giving strategies. Let’s briefly discuss some options that might best fit the bill for you and your particular goals and scenario. Our first strategy we’re going to discuss today is called using a donor-advised fund. Internally, we call that a DAF for D-A-F. It’s a fund that you can donate to and then distribute over the years. The deduction is taken in the year of the donation to the fund. This is nice because you can then redistribute out of that fund over multiple years.

The benefit of using a donor-advised fund is that you can make a lump sum donation or funding to that account and then you have the ability to deduct that in a single tax year and check with your advisor for their parameters around that. There are some rules there to be explored. We can do a separate video that really dives deep into the donor-advised fund.

The important takeaway, for now, is that you can allocate a portion of your funds into the donor-advised funds and then you maintain the flexibility to decide over a couple of years how you want those charitable donations to be divvied up but you can take the deduction in the year that you are making the donation. Might be a nice year to also consider a Roth conversion because you could neutralize the tax expected for the Roth conversion depending on how much you have allocated towards your donor-advised fund.
In other words, this could be good for a client who is a large tax liability in a given year. They can donate 5, 10, or 20 years’ worth of their typical donations in a single year. Note. Again, this is subject to some limitations. The next strategy we’ll discuss is known as a qualified charitable donation or street name internally a QCD. That’s a donation that is made directly from your IRA account to a charity.

A QCD reduces the taxable amount withdrawn from an IRA account. A QCD is not an itemized seduction, but rather it reduces the IRA taxable amount. There are rules and limitations just like anything else for this strategy. One of the ways we see our clients frequently use the QCD is by using it in lieu of their required minimum distribution or their RMD.

You can use your RMD, schedule it as a QCD or qualified donor contribution, and you can actually send that RMD directly to the charity of your choosing, and therefore, you don’t actually take that income. Therefore, you do not have to pay the taxes due on that income, yet, it still satisfies that required minimum distribution amount. Next, we have a strategy to discuss in which you donate every other year. It may be better for you to double your typical donations in a year and skip the next one.

Charitable donations typically go through the itemized deductions portion of your returns. These amounts compete with the standard deduction. For example, the standard deduction in 2022, for a single person, is $12,950. If you typically donate $8,000 a year, you may never get above that standard amount, but if in December of 2022 you go ahead and make your 2023 donation, then you would be at 16,000. You would skip 2023, and then in 2024, donate for ’24 and the year 2025. FYI, this could also be done with property taxes. Combining these could make an even bigger impact.

Let’s talk about a different twist on donating, donating appreciated securities. You can donate appreciated securities like stock, bonds, et cetera, to some charities. This can help you avoid capital gains tax on the sale of those assets. Also, you may get to take the fair market value, or FMV, as your deduction. Let’s go over a few quick notes on donating in general. The IRS limits the amount of allowable donation by a percentage of your adjusted gross income, also known as AGI.

There are different rules for what you are donating and to whom. Know them before making a plan. Where you’re donating to is an important part of the equation. Is it a 501(c)(3) non-profit, is it a public foundation, a private foundation, or is it simply one of your children, which, in that case, unfortunately, it might feel like a donation, but it’s actually, under the eyes of the IRS, considered a gift. Also, what are you donating? Is it cash money, is it your securities, or is it a QCD in the form of an RMD, or are you making a large donation in any given tax year to be able to later determine, like that in a donor-advised fund, where that money is actually going to go charitably speaking?

Whatever the case may be, as you contemplate your charitable donations of any type, it’s a great idea to consult with an advisor and your CPA. As there are many rules and issues to be aware of, it’s best to proceed cautiously and with some professional guidance. Remember that we’re here to answer any questions and help in creating a charitable giving strategy that is part of your overall wealth-building plan that includes savings for retirement, legacy, altruistic goals, and more.

One other helpful suggestion. Our country is known to be one that procrastinates, as I state this video on December 19th here. It is best to have this plan in the beginning of the year or as early as possible in the year as you work with your financial professionals. It is not uncommon for businesses and custodians who hold the money that you invest to get backlogged as we approach December. Being proactive here with your charitable giving plan as early in the year as possible will mitigate any risk that it does not come to fruition at the end of that calendar year.

Last order of business to address today is a list of local communities that we work with, local charitable endeavors that are dear to our heart. The first being The Brookwood Community, which is a residential community for adults with disabilities that provide educational environment and vocational assistance to their resident. I love The Brookwood Community because one of our team members, Dana, is our HR Manager, her adult daughter, Brianna, is a daytime resident at The Brookwood Community, and we were afforded the opportunity to do a tour of the facility a couple of years ago. It was so powerful to see these adults with special needs be able to really contribute to The Brookwood Community.

Everything from agriculture programs to an amazing craft store, which I personally need to stay out of because that’s where my paycheck will end up going every year to our investment clients, we give them a little token of The Brookwood Community, which is a handmade ornament that Brianna and her friends at The Brookwood Community hand paint and custom design for our clients.

Every year, we do a different version of this ornament, so clients that have been with us for 7, 8, 9, 10 years have all different versions of this ornament and it really does start a collection, so that’s The Brookwood Community, and we’ve done several things to help promote and inspire people to contribute to The Brookwood Community. Recently, we took our team to kids meals who provide free kids meals at high-risk kids throughout the year in the Greater Houston area.

We took our whole team there. We went and we packed up lunches for kids that are under five years old and otherwise would not have a healthy lunch. Star of Hope is another faith-based community that is there to support women who are single mothers, fathers who are single fathers, and most of all, kids and families who are experiencing homelessness in Houston or otherwise would not have a Christmas.

This year we sponsored and adopted two families. The first family had seven kids, the second family had five kids, and we were able to go to these individuals’ homes and present them with a Christmas sponsored by our team at Oak Harvest Financial Group. We’ve also helped to serve the Big Brother Big Sister Foundation here in Houston that helps pair children under the age of 18 with responsible mentors as an additive to their life and to help improve their surroundings. We’ve also generated to the Leukemia and Lymphoma Society, which is a group that leads the fight against cancer locally and globally.

What we really liked about this society, in particular, was their emphasis on childhood lymphoma and leukemia. There’s not a whole lot of research dollars that goes to supporting children that are afflicted with these diseases, but the Lymphoma and Leukemia Society help to set out and change that. The Make-A-Wish Foundation works with children who are experiencing critical illnesses and we partner with the Make-A-Wish Foundation this past year to grant the wish of not one, but two children and help make their wish come to fruition.

We have done that through local exposure, showing them a reveal party of what their wish is and really making sure that these children’s wishes come true in their lifetime. Last but certainly not least, there’s TMR Rescue. They provide sanctuary to donkeys, mules, and horses. That one might seem like a bit of an outlier with the other charities that listed. I’d like to share with you that one of our team members, Vicky, that’s near and dear to her heart. She is at The Donkey Rescue Sanctuary every weekend, and we have helped to support and sponsor three donkeys and save their lives this year.

Let’s discuss some key retirement dates as we approach the turn of the calendar and a brand new year. We thought it’d be very helpful to provide a list of key retirement dates to remember for 2023. This list will include everything from the date you must take your first required minimum distribution or RMD, spoiler alert, if you turn 72 in 2022, and the last date to make contributions to an IRA or HSA for 2022, all the way to the date of your second quarter estimated taxes are due and the final date that you can request an extension on your 2023 taxes. Be sure to utilize this handy reference guide to ensure that you are out and in front of everything and don’t miss key dates in the upcoming year.

Be sure to click the link in the description box to reference that handy dandy tool for the important retirement dates that you need to know for 2023. I want to wish you a happy holiday season and also encourage you, as always, to contact us to set up a meeting to discuss any charitable giving or gifting opportunities that are on your heart and sound strategies to apply to your financial situation in regard to charitable gifting. From my heart to yours and the entire team at Oak Harvest Financial Group, Merry Christmas, Happy Hanukkah, and best of the holiday season to you and yours.