tax-wise solutions: planning for today & tomorrow · appreciated assets gifts summary irs rule...

Tax-Wise Solutions: Planning for Today & Tomorrow

Presented by:

Michael Occhipinti, MBT

Gift Planning Advisor Wycliffe Foundation

&

Scott Talbot, CFP®, CAP®

Director of Planned Giving The Great Commission Foundation

• Understanding of Charitable Values

• Specialized Tools and Concepts

• Stewardship Counsel

The Unique Role of the Planned Giving Specialist

• The end of the year is approaching.

• Many challenges and opportunities

• How can I be a tax-wise steward?

Year-End Planning

1. Donor Advised Fund

2. Appreciated Assets

3. Direct IRA Rollover

3 Charitable Giving Strategies

• Charitable Giving Fund

• Works like a Private Foundation

• Relatively new, gaining popularity

• Fastest-growing charitable giving vehicle in the U.S. – More

than 152,000 DAF’s holding over $25 billion

Donor Advised Fund

How does a Donor Advised Fund Work?

Jones

Donor Advised Fund

2

3

4

1

1. Open account

2. Gift cash or assets

3. Receive tax deduction

4. Grant gifts

Benefits of a DAF Immediate Income Tax Deduction

Capital Gains Tax Bypass (Appreciated Assets)

Simplicity

Flexibility

Privacy

Simple Receipting

Legacy Planning

Management of Tax Deductions (Year End)

Sam Sorenson

Income well above his lifestyle needs

Needed income tax deduction before year-end

Very involved in giving to several charities

Wanted to make a meaningful gift to several

However, … he needed time to meet with the charities to discuss and consider projects.

Case Study #1: Cash Contribution

Solution:

Established the “Sorenson Giving Fund” using a DAF and contributed his additional income to the fund.

This allowed him a tax deduction for the current year, and the time and flexibility needed to make wise stewardship decisions.

Case Study #1: Cash Contribution

Case Study #2: Capital Asset Contribution Joe and Dawn Green

Worked in real estate and acquired several rental properties over the years

Would like to donate one of the properties to support their church and two of their favorite ministries

Selling the property would trigger a 30% capital gains tax.

Case Study #2: Capital Asset Contribution Solution: Established the “Green Family Fund” using a DAF, and contributed the property to the fund.

This gave them an income tax deduction and bypassed federal and state capital gains taxes.

Once the property was sold, they were able to make grants from their DAF to their church and other ministries.

WHO?

Someone who …

… needs time to make thoughtful giving decisions

… is experiencing an extraordinarily high income year

… wants to support several ministries with one large gift

… desires maximum flexibility to change beneficiaries

… wants to maximize his giving through non-cash assets

WHO?

Someone who …

… prefers to keep his giving confidential

… wants to control his tax bracket for charitable deductions

… prefers a simple substitute for a private foundation

… desires to involve family members in giving

… needs end-of-year tax deductions

Donating Appreciated Assets “Quadruple Tax Savings”

1. Ordinary Income Tax – 39.6%

2. Capital Gains Tax – 20%

3. Medicare Tax – 3.8%

4. State Capital Gains Tax – 0% to 13.3% (Avg 5.1%)

* No State LTCG Tax: AK, FL, NV, NH, SD, TN, TX, WA, WY

Capital Gains Taxes Are Still Optional!

1. Outright Donation

2. Partial Donation (Gift/Sale)

3. Charitable Remainder Trust

Option #1 – Outright Donation Fair Market Value $100,000

Cost basis $ 40,000

Appreciation $ 60,000

Capital Gains Tax 30.8% (23.8% federal + 7% state)

Income tax bracket 46.6% (39.6% federal + 7% state)

Option #1 – Outright Donation

Sale / No Charitable Contribution:

IRS (capital gains tax) = $18,480

Seller (net after sale) = $81,520

Charity = $0

Fair Market Value $100,000

Cost basis $ 40,000

Appreciation $ 60,000

Capital Gains Tax 30.8% (23.8% federal + 7% state)

Income tax bracket 46.6% (39.6% federal + 7% state)

Option #1 – Outright Donation

Sale / No Charitable Contribution:

IRS (capital gains tax) = $18,480

Seller (net after sale) = $81,520

Charity = $0

Outright Gift:

IRS (capital gains tax) = $0

Charity = $100,000

Donor = $ 46,600

Net cost of $100,000 gift = $ 34,920

Fair Market Value $100,000

Cost basis $ 40,000

Appreciation $ 60,000

Capital Gains Tax 30.8% (23.8% federal + 7% state)

Income tax bracket 46.6% (39.6% federal + 7% state)

Planning Tip:

Donate Stock & Buy It Back

Option #2 – Gift/Sale Fair Market Value $500,000

Cost Basis $100,000

Net after Sale $376,800

Capital Gains Tax 30.8%

Income Tax Bracket 46.6%

Option #2 – Gift/Sale Fair Market Value $500,000

Cost Basis $100,000

Net after Sale $376,800

Capital Gains Tax 30.8%

Income Tax Bracket 46.6%

Sale

Portion

$327,060

Capital

Gains Tax

$80,590

Option #2 – Gift/Sale Fair Market Value $500,000

Cost Basis $100,000

Net after Sale $376,800

Capital Gains Tax 30.8%

Income Tax Bracket 46.6%

Sale

Portion

$327,060

Gift

Portion

$172,940

Capital

Gains Tax

$80,590

Option #2 – Gift/Sale Fair Market Value $500,000

Cost Basis $100,000

Net after Sale $376,800

Capital Gains Tax 30.8%

Income Tax Bracket 46.6%

Sale

Portion

$327,060

Gift

Portion

$172,940

Capital

Gains Tax

$80,590

Tax Savings @ 46.6%

$80,588

Option #2 – Gift/Sale Fair Market Value $500,000

Cost Basis $100,000

Net after Sale $376,800

Capital Gains Tax 30.8%

Income Tax Bracket 46.6%

Sale

Portion

$327,060

Gift

Portion

$172,940

Capital

Gains Tax

$80,590

Tax Savings @ 46.6%

$80,588

Case Study: Business Sale Mark & Stephanie Wennstedt

• A portion of business transferred prior to sale

• At sale, $400,000 sent to their DAF

• Cash for personal use and reinvestment

• Cap Gains Tax Bypass & Income Tax Deduction

• Lower Taxes, More Money for Family & Ministry

Option #3 – Charitable Remainder Trust A

t Death

Income

Asset Transfer CRT

Benefits:

Income Tax Deduction

Capital Gains Tax Avoidance

Ministry

Data Property Value $500,000 Cost Basis 100,000 Gain 400,000 Age 65 Life Expectancy 20 years Tax Brackets: Income 46.6% Capital Gains 30.8%

Assumptions

Sale of Property

Tax Comparison

Investment Comparison

Tax on Gain Charitable Deduction Tax Savings To Invest Return @ 10%

$123,200 -0- -0-

$376,800 37,680

No Trust

Sale of Property

Tax Comparison

Investment Comparison

Tax on Gain Charitable Deduction Tax Savings To Invest Return @ 10%

$123,200 -0- -0-

-0- $223,495 $104,149

$376,800 37,680

$604,149 60,415

No Trust With Trust

CONCERNS:

Preparing to sell the farm and retire

Needed income for retirement

Wanted to make a large donation

Knew they were going to get hit with capital gains taxes

SOLUTION:

Charitable Remainder Trust

Donor Advised Fund

Marty and Loudean Martin

OUTCOME:

Avoidance of Long Term Capital Gains Tax

An income tax deduction

About 40% more income for life for the Martins

A significant immediate charitable donation

Another donation earmarked for ministry after death

Marty and Loudean Martin

Appreciated Assets Gifts Summary

IRS Rule – When sold, the owner pays the Long Term Capital Gains Tax.

Donating (all or a portion) prior to sale bypasses the Capital Gains Tax.

Double Tax Benefit – Capital Gains Tax Bypass + Income Tax Deduction

Gift Portion can be placed in a Donor Advised Fund.

Combination Approach – Gift, Sale, CRT

Appreciated Assets are ideal sources for charitable giving!

Direct Transfer to Charity, no tax recognition

Must be at least age 70 ½

Traditional IRA’s only

Up to $100,000 max. per year

IRA Gifts – Qualified Charitable Rollover

Satisfies Required Minimum Distribution rules.

Effective through 12/31/2013.

401(k), 403(b) do not qualify. First roll into IRA.

Simple to do!

IRA Gifts – Qualified Charitable Rollover

Not included in taxable income!

May avoid surtaxes (Medicare Tax, Tax on Social Security payments,

Part B Medicare payments)

May avoid Limits on Charitable Deductions

May prevent bump into higher tax bracket

May prevent AMT challenge

IRA Rollover Gifts

Case Study:

Joyce has made generous annual gifts to her favorite

charities. Now that she is 701/2, she must begin

taking her Required Minimum Distributions, which

will be $107,000 for the current year. She does not

need the income, as she has other investments that

provide an adequate income. And her RMD

payments are taxable at ordinary income rates.

Case Study: Solution:

Transferring $100,000 from her IRA directly to one or more charities will result in the following:

Qualify $100,000 of the $107,000 as non-taxable income

Reduce her AGI and taxable income by $100,000

Save $44,000 in federal and state income taxes

Make a significant current gift to one or more ministries without affecting her cash flow

Anyone 70 ½ + with IRA considering a gift to charity

Those who do not itemize deductions

Those who do not receive state charitable income tax deduction

(CT, IN, MI, NJ, OH, MA, WV)

Those whose giving exceeds the 50% AGI limitation

Those who are high income earners

IRA Rollover Gifts Who Can Benefit?

Our services are designed for you, our partners. This is our ministry to you.

Your information is kept confidential, and there is never any cost or obligation to give.

We can interact with your trusted advisors, as desired.

You may have multiple charitable interests. We believe it is the Holy Spirit’s job to tell you where to give.

How Can We Help You?

Why Include Us on Your Team?

No cost, no pressure, no hidden agenda

Help from friends you know and trust

Understand all of your options

You will reap the benefits of wise stewardship

Please feel free to contact Michael or Scott. We look forward to the opportunity to be of service to you and pledge our finest efforts and complete confidentiality.

Scott Talbot, CLU®, ChFC®, CFP®, CAP®

Director of Planned Giving Phone: (877) 281-2006 stalbot@gcfccc.org www.gcfccc.org

Michael J. Occhipinti, MBT

Gift Planning Advisor Phone: (800) 681-5103 michael_occhipinti@wycliffe.org www.wycliffefoundation.org

May we be of service to you?

Michael J. Occhipinti, MBT Gift Planning Advisor Phone: (800) 681-5103 michael_occhipinti@wycliffe.org www.wycliffefoundation.org

Scott Talbot, CLU®, ChFC®, CFP®, CAP® Director of Planned Giving Phone: (877) 281-2006 stalbot@gcfccc.org www.jesusfilm.org/donate/planned-giving