3 Strategies for retirees to save taxes through charitable giving

Executive Summary

Do you give, or plan to give to charity? Mark Whitaker and Daniel Ruske cover three tax-saving strategies through charitable giving for those nearing or experiencing retirement. Follow along with the transcript below.

Tax Savings Through Charitable Giving: Welcome to the Webinar (0:00)

Mark Whitaker: Alright, well we’re just about ready to get started here. We’ve got a question for everybody as your joining the meeting here. We’d love to know where you’re joining from. So in the Zoom meeting, if you’re familiar with using the Zoom platform, there is a chat feature. We’d love to hear where you’re from and tuning in from. So if you want to put down your city, or state, or whatever it be. We’d like to see where everybody is joining from.

We got someone here from Provo. We’ve got a local, a local in the audience. Let’s see, we got South Jordan here and Payson. Utah is well represented.

Mark Whitaker: HK, we got one that came in HK, and does that ring a bell to you? Daniel, what is HK?

Daniel Ruske: Hong Kong? I don’t know.

Mark Whitaker: Oh maybe. Maybe I’m looking for a clarification from that one. We got Nevada, Hong Kong, you were right from Hong, Kong, very cool.

So it looks like we essentially have Utah, Nevada, and Hong Kong here. Here we got southern California. Okay, alright very fun. Well, welcome everyone. I think we’ll go ahead and get started for those of you who signed up for the webinar. You probably noticed there was a different face initially on the webinar invite. Carson Johnson, he was going to present today, but unfortunately, he woke up this morning and was feeling awful. And so he asked that we get someone to fill in. So Daniel, one of our senior lead financial advisors, will be joining me today to cover the part of the presentation that Carson won’t be able to cover today.

For those of you who are unfamiliar with Peterson Wealth Advisors, we specialize in providing retirement planning services – financial planning, investment management, and tax planning – for people who are about to retire, or who are already in retirement. As it might indicate from today’s topic, taxes used for retirees are a very important issue to get right. And so we’re excited to do this webinar.

A little bit about Daniel Ruske, he’s one of our lead financial advisors. He has both a Bachelors’s and a Master’s degree in personal financial planning. He’s also a Certified Financial Planner™ professional, and he’s been with the firm for a number of years. Before joining the firm he worked for another financial planning company here in Utah.

A couple of housekeeping items, for those of you who’ve been on our webinars in the past, this will be very familiar. But we have a couple of things to note. Today’s presentation will be about 20 minutes. We want to cover these topics fairly quickly. So we’re not going to go into a lot of detail, but we like to hit the high-level topics and allow for more time at the end for questions and answers. As you’re listening to the presentation today, as you listen to the webinar, Alek Johnson another one of our financial advisors, he’s also a Certified Financial Planner, he will be monitoring the chat line and the Q&A box.

While we’re going through the presentation, if there’s a question that comes up, you don’t have to wait till the end to type it in. Go ahead and type it in and he’ll be able to answer some of those questions during the presentation. And at the end of the webinar, I think we’ll choose a few of them that will be helpful that would be good to cover for everybody attending today. So please use that feature.

Inevitably, as we talk about taxes, as we talk about these topics there are always going to be things that we can’t cover in detail. So if there’s something that wasn’t addressed clearly, or you’d like to follow up with us to get some questions answered, you can reach out to our firm afterwards, and I think Alek, he’s going to go ahead and put in a link within the chat box. So if you’d like to just schedule a time to meet with one of our Certified Financial Planners to ask some specific questions or to go over something in more detail, please take advantage of that. Or if later on, if you just have a question and you just would like a one-off, you’re not necessarily interested in having a dialogue, but maybe just have a single question, please feel free to reach out to our firm through phone or email and we’d be happy to help you out.

A couple of other housekeeping items. Let’s see, at the end of today’s presentation, we’re also going to have a survey. We appreciate your feedback and every time that you answer those we always look at them. And hopefully, we can make these presentations better and more helpful for everybody.

With that all being said, Daniel, do you think I missed anything that maybe we need to cover for housekeeping items?

Daniel Ruske: Alek covered the question that came through the chat. The recording will be sent out to everybody who’s registered. So if you’re not able to attend the whole time or if you want to go back and watch another part again, you’re able to do that. We normally get that email out the following day.

Mark Whitaker: Oh wonderful, thank you Daniel. That’s perfect. So let’s go over to our outline for today’s presentation. We’re going to go over a quick tax refresher before you jump in, and we learn about strategies and talk about how to apply them for retirees.

A brief review of some core principles of the tax code I think are important. So we’ll do that and then we’re going to get right into the strategy that we talked about. Different ways of doing charitable giving to maximize tax benefits for retirees.

So we’ll talk about bunching. We’re gonna talk about donating appreciated assets. We’re also going to talk about using a Donor Advised Fund and making Qualified Charitable Distributions. Like I said, at the end we’ll make time to have a Question and Answer portion.

So with that all being said, let’s jump into, let’s call it Tax 101.

Tax 101 (5:50)

Now I’ve used the analogy, maybe a bit well-worn, but I think it serves its purpose. When you play a board game, and I’ll use the example of monopoly. You have specific rules. And if you want to win, you want to do well in the game, you got to understand what those rules are. And if you don’t understand the rules then you know you’re going to have trouble developing a strategy to have the most advantage.

And as far as taxes go, it’s the same thing. There are rules, and the rules for taxes change from year to year. And so it’s important to work with somebody who can help you understand what those rules are. But there are some general concepts with taxes that basically stay the same from year to year. So that’s what we’ll cover today.

So, with taxes, the individual income tax formula is the basic kind of order of operations for calculating how much taxes somebody has to pay. So for everyone, we start with income.

There’s a lot of different types of income and each one of those different types of income might be taxed at different rates, or there might be a different percentage applied to those kinds or to the different sources of income. Well, when you have income come in, you’re able to exclude some of that income from taxes. So, you don’t even have to count it as income. Those are called above-the-line deductions, or exclusions. These are things that you’re probably familiar with like making a contribution to a Health Saving Account or making a contribution to your 401k or IRA account.

When you make those contributions, you’re making them from income. And that kind of contribution excludes that dollar amount from income. That’s how we arrive at something called your AGI, or Adjusted Gross Income, and this is an important number.

This line right here, your AGI, you’ve probably heard about that because this is the line in the tax code that many of the tax credits and different rates are applicable to. So how much you pay for your Medicare Part B premium in retirement is based off what your AGI is. Whether or not you qualify for certain retirement tax credits in your state or at the federal level is contingent on your Adjusted Gross Income. So this is a very important number, and anything that we can do to manage this number for taxes is very important.

Well, from there, everybody gets to take some additional deductions. You’ve likely heard of something called the standard deduction and something called itemized deductions. A standard deduction is a particular number based on your filing status, whether you’re filing as an individual, or whether you’re filing as a couple married filing jointly.

For example, those are the two most common filing statuses. This is a deduction that you’re able to take. In addition to that you can also, or I should say, kind of alongside that, there are certain things that qualify for tax deductions. And if you add up all of those other deductions and it’s greater than your standard deduction, then you get to deduct the itemized deductions. But if it’s not, you just take the standard.

So fairly familiar ideas. Once you’ve taken off your standard or itemized deduction, that’s how you get to your taxable income there. That’s where you calculate based on your rates, you’re able to deduct credits. And that’s how you know how much of a refund or how much taxes you have too.

Okay, everyone is entitled to tax deductions. And as a quick refresher, these numbers here, these are the numbers for, I’ll pull up my little laser pointer, for the different filing statuses for single and married filing jointly. Now one thing for retirees after you’ve reached age 65, if you’re taking the standard deduction, you get to add an extra deduction to your standard deduction. So, if you’re married, each person gets to add $1,400 to the standard deduction. That’s $1,400 per person. Or if you’re a single filer, you get to add $1,750 and additional deductions.

Okay, a quick refresher. Because of tax law changes that happened back in 2018, most people who file their taxes are just going to take a standard deduction and that’s remained the case for the last several years. So, the question is, with the new tax law, I should say the tax law that was implemented then, how can retirees still get a tax benefit from making charitable contributions?

So that’s what we’ll get in now. So, Daniel do you want to cover today, do you want to cover our first strategy?

Strategy #1: Maximize your Deductions by “Bunching” (10:41)

Daniel Ruske: Yeah, absolutely. So, the first strategy is bunching. Now, as Mark mentioned with the change to the increase in the standard deduction, a lot of taxpayers really take the standard. And what this means is they don’t really get tax benefit for the charitable donations that they make.

And so, the first strategy we’re going to talk about today is bunching. Now, what bunching is, it’s basically lumping multiple years of donations into the same year for the purpose of trying to get above that standard deduction and get a charitable tax credit for your donations. Now, I want to introduce to you the most famous bunch family I know, and this is the Brady Bunch.

Now, as we go through the Brady’s tax situation, theirs might seem pretty similar to some of you. So, Mike and Carol, they kept a detailed record. And this is what they’ve had for their itemized deductions for the year. And keep in mind that these deductions, the goal is to get it higher than the standard so that we can take the higher of the two.

So, for these two, they have the property and state income tax of $6,000. They have mortgage interest of $4,000, and then they have their charitable donations that they’ve made in 2022 of $12,000. If we add up all those itemized deductions together, it’s $22,000. And we cross that to the standard deduction and we’re obviously going to take what’s higher. It would be better for them to take the standard deduction.

Now, as you can see in this scenario, let’s go back just for a quick second Mark, the $12,000 that they donated, they could have 0 on that line and their taxes would be the exact same. So, they’re getting no credit for that $12,000 donation.

Now the next scenario that we’re going to talk about is the same, everything is exactly the same. Except for this time, they donate 2022 and 2023’s charity in the same year. The same property in state income tax is $6,000. The same mortgage interest is $4,000. But this time you can see on the line there, 2022 and 2023 donations are paid to total $24,000. In this case, we add up the itemized deductions, a total of $34,000. We cross that to the standard deduction. The Brady family this year, they’re going to take the itemized deduction, which is higher.

Now the plan when you do a bunch like this, a 2-year bunching strategy would be every other year in 2022. You itemized by donating 2-years’ worth of charity. The next year you’ve already paid the charity at the prior year, so you’ll take the standard and as a result, this gives you an average deduction of $29,400. In this scenario, obviously, your numbers will be a little different. But in this scenario, it results in a yearly savings of $828 each year.

Now, let’s cross that to 3-year bunching. So, in this scenario, the plan would be to donate 2022, 23, and 24’s charity all in the same year. You know we have the same property and state income tax, the same mortgage interest. But this time, the charitable donations are $36,000, 3 years’ worth of donations. As we add all those itemized deductions together, we get $46,000. It’s obviously much greater than the standard deduction.

The Brady’s will take the $46,000 as the deduction for their 2022 income on their income tax return, and then you can see in this plan you would donate 3 years, get the deduction. Then the next 2 years you would take the standard, and then in that, in that fourth year, you would determine if it makes sense to bunch again. And by doing a 3-year, bunching strategy you can see that Mike and Carol are saving approximately $1,272 each year.

Now a few things to highlight about bunching is, you know, you have to have the money to pay upfront right? And you have to kind of give this lump sum, you know, either 2- or 3-years’ worth of donations in the same year. And so, keep that in mind when applying the strategy. And then the other thing to consider is maybe you have this money, you’re ready to donate, and you know you’re going to donate it, but maybe you don’t really want the charity to get it all at once. Or maybe you don’t know you know, for sure, what your charitable desires will be in the future. Are you able to get a donation this year, and then divvy it out later on?

And the answer is yes. And so the answer to do this would be a Donor Advised fund. Now a Donor Advised Fund, is abbreviated DAF or DAF. So if we say DAF, we’re referring to this Donor Advised fund. And really, I think it should be called a Donor Advised account. I think it just makes it easier to understand because this fund is actually an account that an individual can, or a joint couple or family can establish. Really it’s an account, a personal charity account for you.

And as you can see on the screen if you follow the arrows, the advantage is you can donate cash, or appreciated stock donations and kind to this account. Now you get the tax deduction the year you donate it to this account. However, this account is something that you and your family can manage and really divvy out to the end charity in any amount that you want and really at any rate that you want.

So this account works really well if you’re bunching and you want to, you know, maybe you have a grandson, or daughter going on a mission next year. And you want to help with their mission, but you want the donation this year.

Well, you could donate to a Donor Advised Fund, have it sit in this DAF account until the need arises for a charity. And then from the DAF, you transfer to the end charity. And I will note that if you donate to a DAF, all of the funds in that account, or that Donor Advised Fund must go to a charity. There’s no way to get it back. So as long as it goes to a qualified charity, this can be for you know, really any of the donations, to the Church, it can be to any qualified charity that you could think of that you might donate to.

Very good. And then, the last thing I want to, well I’ll go through these points really quick and just read them. The reason why a DAF might work for you is with a DAF bunching of donations it becomes much easier to do and charitable giving becomes much more flexible.

A DAF also helps the donor to get tax deduction when it’s needed the most. And I want to talk a little bit more on this point here. You know, a DAF is common, we use it with our clients. Let’s say they sell a property, or they sell a business, or they get some type of payout the year that they retire. The advantage to do a bunching strategy or utilizing a DAF in a year when you have higher income is it makes the tax benefit even greater. So let’s run through a scenario real quick.

Husband and wife, they sell a property. They have much higher income than they normally do because of the sale of this property. They also have some extra cash that they could donate so they take the proceeds from the cell of this property. They donate 2- or 3 years’ worth of donations into a Donor Advised Fund. They get the deduction the year that they have the high income. And then they have this account that they can use for charity, really for the remainder of their lives. And I’ll add one more thing here, is, let’s say you have funds remaining in a DAF when you pass away. You can designate an end charity as the beneficiary of that account. Or you can name one of your family members to continue to manage that account on your behalf even after you passed away.

So, if you’ve donated to a DAF, and you haven’t used all of those funds, you could name your son or daughter and they can continue to use that for charity purposes as the family sees fit. So, it really is a great tool and that goes to point number 3, it creates a charitable fund for future generations there.

Strategy #2: Donating Appreciated Assets to Charity (19:26)

Very good. Strategy number 2, Donating Appreciated Assets to charity. Now, this idea has been used in the past. We’ve heard of donating eggs and milk and wheat to charities. And rather than donating just cash or money right? And the item, that I’m going to bring up today is donating apples. And you may not donate an apple from a tree, but you donate apple stock. So the donating of appreciated assets. What this is, is let’s say, you bought apple stock and the stock has grown inside of this. And the shares they are embedded gains that if you sold to cash, you would have to realize the long-term capital gain that you’ve had on this apple stock.

Now, what if you donate it directly to a charity? Well, what happens is you don’t have to realize that capital gain, and the charity also doesn’t have to realize that capital gain. And so, I have here on the screen on the left-hand side, we have a situation where we have appreciated apple stock. On the left-hand side, we have the $25,000. We sell it to cash and then we donate the cash. What happens in this scenario is, we have to pay $5,000 worth of State and Federal tax to give us a net of $20,000, which we then can donate to our charity.

Now, on the right-hand side, what if we just donated the apple stock directly to our charity? Well, you can see instead of paying $5,000 to State Federal tax, you pay nothing. And I’ll note that the charity also doesn’t have to pay this. What happens here is the charity gets an additional $5,000 and the donor doesn’t have to pay the tax on the gain. The donor also gets to deduct the full $25,000, versus just the $20,000 net after taxes. And then the last thing here is you can use the cash, say the $5,000 savings to reinvest, in you know, let’s say apple stock again, or another stock. And a few years down the road after it’s grown and has this appreciated value to it, you can then do the same strategy again. You could donate the appreciated stock.

So we have clients that you know, they donate let’s say $10,000 per year. And rather than donating cash, they donate $10,000 worth of stock. And then with that $10,000 that they’re taking from their wages, or from you know their Social Security or so forth. They then just reinvest that cash back into stocks. And then we kind of have this always maturing or always ready to donate appreciated stocks, and it works out to be a great strategy there. The last thing I’ll mention.

Mark Whitaker: Daniel, I was going to, Dan sorry to interject I was going to ask you. So, what we’ve talked about donating stocks that have gone up in value. Are there other or what are some of the other types of investments or in-kind donations that a person could make?

Daniel Ruske: Yeah, so perfect question. So, there are ways you can donate, say a part of a business. There are ways you can donate part of a property too.

So, let’s say you have an appreciated business, that the basis in it that it’s growing a lot larger. There are ways to donate this to avoid the capital gain on selling this. You know in this case, it’s not a stock but a property or business to then defer, or not defer, but don’t donate that, those gains and save those taxes. And then Mark maybe you have more you want to add to that question.

Mark Whitaker: Yeah, I was, I would maybe just to put a bow on it. I think you put it really well Daniel. Maybe the one last little thing that I’ll add is to say that when you donate appreciated investments that have gone up in value. A good way I like to think about it is you’re getting to double dip with your tax benefit.

Like Daniel said you’re able to, number one, you don’t have to pay the capital gains tax on the growth that you had in the investment. So now all of a sudden, you’ve avoided a certain amount of additional income. So that’s the first tax benefit. And the second is you now have the ability to donate a larger dollar amount potentially and increase, you know, the ads to your itemized deduction. So, this is a great strategy that’s known. But it’s also overlooked enough that we wanted to make sure it was included for today’s presentation, a very powerful tool for really for anybody, but especially for retirees.

Daniel Ruske: Excellent, I’d just add one more thing, Mark. A lot of charities have a donation and kind department. So, if you have questions about a particular charity, and if you can donate stock, or appreciated asset of any kind, you know we’re happy to do some research for you and contact that department. But a lot of those have it. And I saw a question pop up.

Can you donate stock to a DAF or does it have to go directly to the charity? Yes, you can donate appreciated assets to a Donor Advised Fund. So that could work.

Mark Whitaker: So, you know into your last point Daniel. I’ll just say this last one thing before we move on. To your last point, about not knowing whether the charity that you want to donate to, whether or not they have the ability, you know the team to be able to accept appreciated investments, you know except stocks and that sort of thing. And this is one of the other benefits of using a Donor Advised Fund, is that you know using a Donor Advised Fund, we like to use the one that’s done through Fidelity, Fidelity Charitable. But there’s a lot of other ones that are excellent.

These larger financial institutions have the legal and accounting teams and just the infrastructure to allow you to make donations of appreciated assets. And then from there you know, you can send a check to you know the food pantry or you know, what other maybe local charity that doesn’t have, maybe doesn’t have the bandwidth because they’re a smaller organization. You can just send them cash and make it so it can facilitate donating to the people that you want to.

Strategy #3: Qualified Charitable Distribution (26:04)

Okay, so the last strategy that I’m going to, that we’ll talk about today is something called a Qualified Charitable Distribution, a QCD.

And up to this point, all of the strategies that we’ve discussed have related to trying to maximize your itemized deduction. So instead of taking the standard deduction, what if we donated multiple years of donations to be able to bunch and get a higher itemized in a particular year. And then on average, you know, we’ll have higher deductions. Or what if we donate shares of stock you know this way, we’re able to increase that itemized deduction. All of those deductions, or all of those donations, are coming from non-retirement accounts. And when I say non-retirement, what I’m referring to is you know, like a brokerage account, or a bank account.

Now, with this third strategy, Qualified Charitable Distributions. This is a little bit, different. This is a charitable giving strategy that is only available through a particular type of retirement account, an IRA. Nothing fancy, many of you have heard of it. It’s like a 401k account. Not through a company, just on your own. And this giving strategy is also only available to folks, who are over age 70 and a half. Now when you make a donation from a retirement account it also creates a deduction on a different part of the tax code. A deduction here actually reduces your AGI, your adjusted gross income. So it can have some additional tax benefits that the other strategies we discussed can’t do. So that’s what we’ll get into.

How does it work, and what is it? So like I said, a Qualified Charitable Distribution is a donation made from a retirement account, from an IRA. And when you do this, you’re taking money directly out of your IRA and setting it to a qualified public charity.

Now the benefit to doing that is you don’t have to recognize that the money you’re taking out, you don’t have to recognize that this is income. And for those of you who are getting closer to 70 and a half, or are already there, or may have just heard of this, once you reach age 72 in the United States, you actually are forced to take out a percentage of your retirement account each year. Whether you want to or not. Whether you need the income or not.

And so now all of a sudden, you’re going to be forced at 70 to take money out. This is a method of getting money out of your retirement account without having to pay taxes. So what are some of the benefits of doing a Qualified Charitable Distribution?

Well first of all, because you’re taking out, you’re taking it out tax-free, you don’t have to pay taxes on that distribution which you normally would have to. The other benefit is that because you’re reducing, because of the tax code, the amount of taxes you pay on Social Security could potentially be lower by making a donation this way versus other ways.

And a couple of, and then I guess maybe just to reiterate a point that we’ve already made, is that because of the higher standard deduction like Daniel illustrated, many people who pay to share, who make donations to charities don’t receive although it’s important to them. They don’t actually receive a tax benefit because their total itemized productions are rarely, you know, rarely exceeding their standard deduction.

So let’s talk about maybe how, let’s look at kind of a, let’s get an example of how this works. So I have a retiree. Her name is Lori, and Lori is interested in doing a Qualified Charitable Distribution, a QCD. So we can see here on the left-hand side, these are her sources of income. She has Social Security, she has a pension, and every single year, at 72 now, she has to take out $10,500 from her IRA account. Now you can see that below that, we have her itemized deductions.

She could either do an itemized or standard. Well, she has her State and local taxes. And then she is going to plan on making about $7,000 worth of charitable contributions. So actually looking at her itemized deduction, $15,000, it is higher than the standard deduction. So she says, great I’m going to itemize. And with that, she has a total tax bill of $5,471. Now FYI, we have people tuning in from not just the United States, but other countries as well as every state. The numbers I’m using for this are for U.S. federal income tax and income tax for the State of Utah. I say that because every state has a different way. Some have an income tax, some don’t. They’re all different so just a little disclaimer here.

Okay, so with this she says well what if instead of doing an itemized deduction for the $7,000, what if I did a QCD? Well, let’s look at what that would do. First of all, we have the same income sources, pension, Social Security. I’d like to highlight one thing here on this page. You can see here that next to Social Security. In the first example, of the $35,000 she received, $16,400 was taxable. Well now, in the second scenario, only $10,450 from Social Security is taxable. Now, why is that? It’s the same Social Security.

The reason is because now that she doesn’t have to claim this $10,500, that full amount is income because she’s going to take out 7,000 and send that directly to a charity. It has an additional tax benefit in that she doesn’t have to claim as much of her Social Security as taxable income. That was a lot, maybe a little too wordy, the way that I put that. But the bottom line is that by doing a donation this way, you can potentially save additional taxes by lowering the amount of your Social Security benefit that is even subject to taxes.

So, let’s look at the numbers. Well, for itemized, she just has her state and local taxes. No charitable because she took it here. She can’t double-claim it. And so now she’s going to take her standard deduction. And you can see here that are total state and federal tax income taxes for the year are $3,108. So the bottom line is, she’s going to save almost $2,400 in taxes. Not by donating extra, but just by changing the method, the way she donates.

Okay, next example. We’ve got Jim and Lisa, and we have their income sources here. Pension, Social Security, and they’ve saved up a lot of retirement savings. So their required distribution is $60,000 for the year. Okay, we look at their state and local taxes and they’re going to donate about $25,000 to charity this year. Well, they’re going to take the itemized deduction. Often we have people ask us, “Well I already itemized because of how much I donate so this isn’t relevant for me.” Well, it may. Sometimes it’s not, but often it is.

So you can see that they’re going to take the itemized deduction and they have a total tax bill of just over $18,000 between state and federal. So, let’s look at what would happen if they did a QCD instead.

Well, here you can see that they’re taking out instead of $60,000, $25,000 of that is going to go directly to their charities. Instead of taking an itemized deduction, we’ll take a standard deduction. And you can see their total tax bill here is about $13,460. So again, even for somebody who was itemized, by changing the method by which they donate, they’re saving over $5,200 in taxes. By donating extra, doing anything special, except for this one thing, which is changing the method of donation. Doing a QCD versus itemizing it.

Okay, a couple of things to know with QCDs. It’s almost always beneficial to do it, not always, but almost always. And really to answer this question, we just need to run two scenarios, look at it both ways, and see if it makes sense. And to answer the question, yes, it does satisfy your required distribution. I was going to go into detail here about how to report a QCD. This is really the realm of your CPA, and this is something that’s a lot more well-known now. So I won’t do any details here, but obviously, you can ask more about that later.

You have to be 70 and a half to do a QCD. It has to come out of an IRA and you can’t do it from a 401k. Unfortunately, that’s part of the rule. So you have to do a rollover from your 401k to an IRA. And then from there, you can do QCDs. The donation has to go directly to a charity, and if you were curious, there is an upper limit where you can’t donate more than a $100,000 in a particular year.

So we’ve got some lessons I guess to pull from this. Getting to know your numbers. We need to base our decisions on real information. It’s hard to do planning unless you know the rules right? And taxes matter. By implementing these strategies, this is a way that you can have more money for your standard of living.  Inflation is relevant, so the more that you can keep for yourself, rather than paying in taxes, is going to help with that. And you’re going to be able to support causes more efficiently that are important to you.

So with that being said, I think we’ve covered everything that we want to. We’ll go into our question-and-answer section now. And so, if you have a question, go ahead and put it into the Q&A box, and Alek I’ll turn the time over to you. Any questions that have come in that maybe we can get started with?

Question and Answer (35:49)

Alek Johnson: Yeah, perfect. We’ve actually had a lot of really great questions. So, the first one here is just, I’ve kind of partially answered, but if you do want to speak more to it.

If you own a home. Isn’t it always better to itemize deductions?

Mark Whitaker: Yeah, great question. Daniel, do you want to jump on that?

Daniel Ruske: Yeah, great question. So, if you own a home, is it always better to itemize? My initial thought would be no. Now there’s an advantage to having mortgage interest because that goes to your itemized deductions. And then maybe helps get you closer to getting your charitable donations to help you on your tax credit. But I wouldn’t always say no. I would say you really have to take it case by case. Mortgage interest can help you on your taxes, but then you are paying interest to the bank. And so really, we’d have to dive into the situation to determine what’s the tax savings versus what interest you’re paying to the bank to figure out, okay does it make sense to itemize, or to just look into something else.

You have anything more to add there Mark?

Mark Whitaker: I know, I think that’s great. I was going to say just by way of example with many of our clients. I would say that most of our clients, they’re retired, or they’re about to retire, and they have their homes paid off. And those that don’t have their homes paid off have fixed-rate mortgages with very small mortgages. And so that being the case, most of our clients are taking standard deductions most years, even though they own homes. And that’s not because you know some philosophical, bent towards yes we have to take a standard deduction.

Like Daniel said, we just have to look at the numbers and what actually makes sense on a case-by-case basis. So yeah, just because you own a home doesn’t necessarily mean as a retiree that you will itemize. So a great question.

And given the time here, Alek, maybe we can do maybe one or two more good questions. And then I’ll say if with the questions that have come in, if you didn’t get your question answered, or you have other questions like I said you can reach out to our company directly and we’ll be happy to answer more questions for you. But any others there Alek?

Alek Johnson: Yeah, perfect. So one more that might be worthwhile for the general public here.

When donating appreciated assets to receive the tax deduction, do your deductions have to exceed the standard deduction to make it beneficial?

I kind of partially answered that there’s kind of two portions here of the tax benefits between the appreciated assets themselves, and then getting above that standard deduction if you want to talk about that.

Mark Whitaker: Oh, I love that Alek. Yeah, you really hit the nail on the head. So to answer the question, when you’re donating appreciated assets, does it have to be greater than the standard deduction to even make it work?

Like Alek said, there’s two 2 components that you might remember I said. Appreciated assets is like double dipping. So the first benefit is that by donating the appreciated asset, let’s say you were going to donate $10,000 to charity anyway. So you could do it with appreciation stock or with cash. Well, the benefit of just doing the stock is that in order to, you know by donating that, you no longer have to recognize the capital gains tax embedded in that stock. So you’re getting a tax benefit right off the bat by donating this stock instead of using cash.

So that’s the first thing, and that is a relevant tax benefit whether or not you itemize. Now to the second part of the question, does it have to be greater than the standard deduction to be valuable? Well, the larger it is the better it is. However, it’s possible that let’s say you have higher medical expenses, or you have some mortgage interest, or you have your state and local income tax. If you add up all of those maybe all of that together is $20,000. Well, then to exceed the standard deduction, maybe you only need 5 or $6,000, or 7, 8 right? And so it really depends on your other itemized deductions. So anyway, I hope that’s helpful, gives a little insight into how to think about that.

Daniel Ruske: I, love it Mark. Yeah, you described it very well.

Mark Whitaker: Maybe one more question Alek, and then we’ll let everybody get back to work.

Alek Johnson: Perfect, so one last question here then. So the last question, if I already am itemizing, does it still make sense to do a QCD from the IRA?

Mark Whitaker: Yeah, excellent question. Daniel, any thoughts on that? We covered this in the presentation, but maybe any additional thoughts?

Daniel Ruske: Yeah, so the answer is, we’d have to look at the numbers. And Mark did when he talked about the QCD. He mentioned that in almost every case, the QCD is the better option. But we’d have to look at the numbers. And this is one of those cases where it’s close.

I’ve ran it for clients before that itemized no matter, and really, it turns out to be in my experience, either the same or better to do a QCD. Now, a lot of times it’s the same or better because of the state tax. So depending on what state you’re from we’d have to determine, okay, are you getting savings on the state side even though the federal might be exactly the same. And so it doesn’t make sense. The answer is it could, and I think it’s definitely worth looking at.

Mark Whitaker: Yeah Daniel, I’ll just add one extra thing that we didn’t cover that Daniel didn’t mention, or what, like you said, we have to just look at it. And usually, it’s the state taxes that can like tip the scales one way or another.

One other thing, since we’re talking about retirees is that when you’re retired, you’re taking Social Security. You pay a Medicare Part B premium and believe it or not, the amount that you pay for that Medicare Part B premium is actually based off of your adjusted gross income. I’m sitting here kind of pausing because there are some little nuances. It’s not exactly your AGI, but it’s close to your AGI. So one of the potential benefits of doing a QCD versus itemizing, even if it would be the same either way, is that it’s possible that by doing a QCD, it lowers your AGI and thus allows you to pay a lower premium on your Medicare Part B premium. You know a lower cost for your Medicare Part B.

So, for example, for 2022, the Medicare Part B premium is $170.10 for the lowest income bracket. But it could go as high as $578 per person for Medicare Part B. So anyway, that’s another reason why doing a QCD may be more beneficial than doing an itemized deduction. Because it could reduce how much you pay for Medicare Part B.

So as you might be able to tell, all of these things are interrelated. And maybe you never thought that your health insurance would be related to your taxes, to your charity, to your retirement. But actually, all of these things impact each other. So it’s important, just like before you crack open a new board game, it’s important to read the rules before you put together a good strategy. Before you even can put together a strategy with your retirement income plan, taxes, health care considerations, your income, and your investments. It all ties together. So, it’s important to know the rules and see how you can find advantages and savings by looking at all of these things together as opposed to just one at a time.

I think that’s all we have for today. Again, thank you everyone. There will be a recording that you can pass on or watch this again, and hope everyone has a great day. Merry Christmas, and hope to see you again soon.

About the Author
Partner, Senior Advisor at

Mark Whitaker holds a bachelor’s degree from Utah Valley University in Personal Financial Planning and a master’s degree from the College for Financial Planning in Personal Financial Planning.

About the Author

Daniel is a Lead Financial Advisor at Peterson Wealth Advisors. He holds a master’s and bachelor’s degree in Financial Planning with a minor in Business Management from Utah Valley University.

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