Proposed tax plan

[JoeWras]

It's less complicated and it's anonymous. You don't have to keep or file any contribution records beyond the DAF donation. From a single DAF donation in one year you can create grants to multiple charities over multiple years.

For the direct gifting from IRA, you've got to get a tax records type acknowledgement from the charity, and since the check is coming from the IRA administrator you have to let them know that it's actually from you. If you gift to multiple charities it's a lot more tax paperwork.

Like Audrey, I'm a DAF proponent.

The DAF also makes stock gifting admin a breeze. Let the DAF handle the stock, and they do so quickly. Some small charities that my DAF (Vanguard Charitable) approves would choke on stock for a while until they deal with it.

We've already given about 25% of our income this year to the DAF. I think we may boost it this year and use the DAF for our donations the next few years. I have to re-look at limits first, however. It may make more sense to give a batch next year when DW and I still have income in our last partial year of work. Of course, pending the progress of the bill, etc.

 

[FIRE'd@51]

For the direct gifting from IRA, you've got to get a tax records type acknowledgement from the charity, and since the check is coming from the IRA administrator you have to let them know that it's actually from you. If you gift to multiple charities it's a lot more tax paperwork.

The check can be made out to the charity and sent to you, and then you can mail it to the charity, similar to the way an IRA rollover works. This pretty much avoids the problems you raise.

 

[bingybear]

Personally I enjoy looking at the "what ifs" and pre-thinking and penciling in strategies. Even if this is far from final, at least then plan is more explicit and detailed, so you have something to work with.

Now we see that parents' exemptions are being replaced by increased deduction, whereas kids' exemptions are being replaced by increasing the Child Tax Credit with a refundable and non-refundable part. I wasn't aware of that full picture before.

Year 2018 is almost here, so I like to be tax-planning by now anyway to decide when to contribute to IRAs, how to split 403/457/IRA between Trad and Roth and various other things. If recharacterization is going, I'll wait to contribute to IRAs so I can control AGI as needed.

If there are changes, I'll adjust accordingly, but it's important to think it through now, so I can quickly adapt decisions that need to be made soon.

What is clear to me now is that in my scenario, and for a wide range of plausible tax changes, the only sensible options for 403/457 contributions either to be 100% Trad or else to be 100% Roth, so I encounter a big decision fork very early in the year. I need to be ready.

In many ways planning while working is different than planning in RE. Many of the people on this board are high end planners... but I could see some preparing to make changes before the bill becomes law... would not want to procrastinate.
Planning with no earned income is different than planning with significant amounts of income.

 

[Cobra9777]

I believe he's referring to this analysis that's been in my Google news feed today: https://medium.com/@kamin_83016/how-a-tax-cut-turns-into-a-tax-increase-960c32d1ba82

I have no prior knowledge regarding Kamin's credibility or biases, but he does show the math that leads him to arrive at this chart:

Thanks for posting that link. I also heard this on CNBC and PBS Newshour, but without any details to support the claim. I read the Kamin piece and it appears to be a well thought-out analysis, although I've not attempted to validate the math.

I can't spend time digesting that Kamin article right now, but one very odd thing is that the family income doesn't increase at all for the 10 years in the analysis? and the kids never leave home? perhaps the are currently very young!

I notice that he is an academic... I doubt that he has an axe to grind.

This is in the assumptions section of the Kamin piece:

Finally, I have given these figures for a family in each year making $59,000. An alternative approach would have been to assume that the example family’s income grows with inflation. If that were to occur and the family’s income grew to about $73,000 by 2027, the tax cut would dissipate but not entirely disappear. By 2027, the family would have a tax cut of a bit over $200 — still down considerably from the figures being touted. To be clear, the calculations here would still accurately illustrate how a middle class family of four— one making $59,000 in the given year — faces a tax increase starting in 2024.

 

[Pilot2013]

Glad the last post was removed.... So far this discussion has been civil, and informative.

 

[misanman]

For the direct gifting from IRA, you've got to get a tax records type acknowledgement from the charity, and since the check is coming from the IRA administrator you have to let them know that it's actually from you. If you gift to multiple charities it's a lot more tax paperwork.

FWIW - We use QCD from my IRA and I've never run into these issues.

 

[Cobra9777]

Glad the last post was removed.... So far this discussion has been civil, and informative.

+1

I very much want to see this discussion continue. I cringed when I saw that post.

 

[audreyh1]

The check can be made out to the charity and sent to you, and then you can mail it to the charity, similar to the way an IRA rollover works. This pretty much avoids the problems you raise.

It avoids only part of it.

• You've still got to do that for every charity you wish to do so for every year.
• You've still got to be sure to get the gift acknowledgement back from each charity and keep them for your tax filing.
• You've lost your anonymity.

And you are dependent on how well your IRA administrator supports the donation option. With our DAF we go online, enter our grants for the year, we're done and no need to keep records of gifts to each charity. In filing taxes for the contribution to the DAF I only have to deal with one entity and their statement.

I don't know where in the tax forms you show which of your IRA withdrawals went to charity and that they count towards your RMD.

 

[audreyh1]

FWIW - We use QCD from my IRA and I've never run into these issues.

How do you document part of your RMD going to qualified charities?

 

[gerntz]

It's less complicated and it's anonymous. You don't have to keep or file any contribution records beyond the DAF donation. From a single DAF donation in one year you can create grants to multiple charities over multiple years.

For the direct gifting from IRA, you've got to get a tax records type acknowledgement from the charity, and since the check is coming from the IRA administrator you have to let them know that it's actually from you. If you gift to multiple charities it's a lot more tax paperwork.

OK, but DAF is with post-tax monies vs. pre-tax for IRA gift. I'd much rather governments not get a cut of my gifts. I bet my hourly rate for the added paperwork is higher than I ever earned.

Also, doesn't the DAF tax benefit come the year you create the DAF vs. the year the gift occurs? I'd like to be able to control my income with gifts from IRA.

 

[meierlde]

On another topic related did folks see that deferred income plans are going away? Apparently the rules are changing such that once the amount is vested tax is due instead of when it is withdrawn. This type of plan is often used by executives to reduce current taxes in favor of lower rates after retirement. Also they propose changing the rules for deductability of salaries etc to limit it to $1,000,000 including performance based compensation (will see if this lasts very long)

 

[gerntz]

Just as a side note, do you find it annoying when a news article uses actual dollar figures in tax savings for someone when they want to present something as marginal but uses percentages when they want to sound drastic?

I was reading today where a person with a $75k income would only save about $84.50 per paycheck (the article assumed paid twice a month). To phrase it like that makes it sound very small.

They could have said a person with a $75k income would see a 17% decrease in the amount of federal tax owed, which sounds quite a bit better but I guess would not align with whatever point the article was trying to make.

Over $4K/yr is a lot, I think, to someone making $75K.

 

[gerntz]

The check can be made out to the charity and sent to you, and then you can mail it to the charity, similar to the way an IRA rollover works. This pretty much avoids the problems you raise.

Thanks!

 

[audreyh1]

OK, but DAF is with post-tax monies vs. pre-tax for IRA gift.

Also, doesn't the DAF tax benefit come the year you create the DAF vs. the year the gift occurs? I'd like to be able to control my income with gifts from IRA.

Not entirely, if you gift appreciated stock the capital gain does not appear on your income and DAFs make it very easy to gift appreciated stock. When gifting appreciated stock you actually get a twofer - reduced capital gains income (versus selling it and then turning around and gifting it) AND a charitable tax deduction on the fair market value.

So you should also file a schedule A that year and have enough deductions to make itemizing worth it otherwise you don't get the full tax benefit potential of the DAF gift. You still avoid the income regardless of whether you file Schedule A.

In the case of gifting from an IRA you get the benefit of reduced ordinary income AND it counting towards your RMD for the year.

The tax deduction/reduced income benefit comes every year you contribute to the DAF. (not only when the DAF is created by the initial contribution)

So, if you could gift from an IRA to a DAF instead of directly to a qualified charity, that would be the ultimate. Which was actually my original point.

 

[gerntz]

It avoids only part of it.

• You've still got to do that for every charity you wish to do so for every year.
• You've still got to be sure to get the gift acknowledgement back from each charity and keep them for your tax filing.
• You've lost your anonymity.

And you are dependent on how well your IRA administrator supports the donation option. With our DAF we go online, enter our grants for the year, we're done and no need to keep records of gifts to each charity. In filing taxes for the contribution to the DAF I only have to deal with one entity and their statement.

I don't know where in the tax forms you show which of your IRA withdrawals went to charity and that they count towards your RMD.

I think you're making mountains out of molehills. One, we've given to as many as a dozen charities in one year. Paperwork and charities' gift letters followup needs to be done but it's an hour total, max. OK, my fingers get sore writing so many checks.

Two, I think most IRA custodians are more competent than you give them credit for. Big guys are used to handling the issue by now.

Three, again, the IRA direct donations are with pre-tax dollars. That's way more important than the anonymity you're apparently highly concerned about as it lets us gift more while retaining more.

 

[gerntz]

Not entirely, if you gift appreciated stock the capital gain does not appear on your income and DAFs make it very easy to gift appreciated stock. When gifting appreciated stock you actually get a twofer - reduced capital gains income (versus selling it and then turning around and gifting it) AND a charitable tax deduction on the fair market value.

So you should also file a schedule A that year and have enough deductions to make itemizing worth it otherwise you don't get the full tax benefit potential of the DAF gift. You still avoid the income regardless of whether you file Schedule A.

In the case of gifting from an IRA you get the benefit of reduced ordinary income AND it counting towards your RMD for the year.

The tax deduction/reduced income benefit comes every year you contribute to the DAF. (not only when the DAF is created by the initial contribution)

So, if you could gift from an IRA to a DAF instead of directly to a qualified charity, that would be the ultimate. Which was actually my original point.

One can gift appreciated stock & get the tax benefits independent of a DAF. So the two need not be mixed in the discussion.

As I think you said, unless you can generate enough deductions to benefit from itemization BEFORE gifting, you don't get the full tax benefit of gifts anyway. Bunching has been the only way we come close to achieving that. And that's why we've gifted in alternate years also.

 

[audreyh1]

I don't know where in the tax forms you show which of your IRA withdrawals went to charity and that they count towards your RMD.

Apparently the reporting part is simple on 1040 line 15. But the IRA administrator will send you a 1099-R as if you took the entire distribution directly. So it's up to you to document the charitable contributions and keep them with your tax records for the year when you claim a lower amount taxable due to QCD.

Good discussion of how to report and record keeping requirements in the comments to this article.
https://www.kitces.com/blog/qualifi...om-ira-to-satisfy-rmd-rules-and-requirements/

 

[audreyh1]

OK, but DAF is with post-tax monies vs. pre-tax for IRA gift. I'd much rather governments not get a cut of my gifts. I bet my hourly rate for the added paperwork is higher than I ever earned.

One can gift appreciated stock & get the tax benefits independent of a DAF. So the two need not be mixed in the discussion.

As I think you said, unless you can generate enough deductions to benefit from itemization BEFORE gifting, you don't get the full tax benefit of gifts anyway. Bunching has been the only way we come close to achieving that. And that's why we've gifted in alternate years also.

I was simply pointing out that DAF contributions are not limited to post-tax dollars as you had stated earlier.

Like I said - my main point was wishing for the convenience of a DAF as the recipient of a direct IRA charitable donation and have it count as part of the RMD.

 

[sanfanciscotreat]

For us, that's the biggest hit. We give anywhere from 10k to 50k, depending on the year, while working. In ER, our plan was about 15k per year. With a 24k exemption, it gets lost in the weeds.

That's one area the Donor Advised Fund may come in handy. We can stack donations in one year and dole them out over a few years. This will probably be what we resort to.

Yep. Already done this a couple of weeks ago.

 

[TrvlBug]

... ...For the direct gifting from IRA, you've got to get a tax records type acknowledgement from the charity, and since the check is coming from the IRA administrator you have to let them know that it's actually from you. If you gift to multiple charities it's a lot more tax paperwork.

We'll be looking into this for 2018. We're DINKs and our NW is at the point where we can contribute substantial $s to our charity(ies) now rather than later. We will still continue with the DAF but identify one charity to donate to from DH's IRA.

 

[Calico]

Glad the last post was removed.... So far this discussion has been civil, and informative.

+1

I very much want to see this discussion continue. I cringed when I saw that post.

+2

I'm a little late to this thread today, but yesterday I feared that it would be closed due to inappropriate posts eventually popping up. I very much appreciate how informative the thread is, and hope it can continue to run.

So, whatever the post said that was removed, thank you to the mods for keeping things on track!

 

[GrayHare]

100% of my dad's income goes to his medical expenses. He is completely medically dependent for everything from feeding to the toilet. ...
What's he supposed to do when his expenses now exceed his income because he's now unable to deduct his medical expenses?

IMO the very ill are the most negatively impacted by the proposed changes since their alternatives are few. As others have mentioned, by comparison health insurance of most workers is tax free. If I could make one change to the proposal, it would be to keep the medical deduction.

 

[audreyh1]

IMO the very ill are the most negatively impacted by the proposed changes since their alternatives are few. As others have mentioned, by comparison health insurance of most workers is tax free. If I could make one change to the proposal, it would be to keep the medical deduction.

+1

 

[bingybear]

100% of my dad's income goes to his medical expenses. He is completely medically dependent for everything from feeding to the toilet. For now, he can deduct his entire income and not pay any federal income tax because of this. He has a pension, Social Security and a VA stipend for his income. If this deduction goes away, it will cost him about $500 a month. Meaning he'll be at least $6,000 a year short on making his expenses. What's he supposed to do when his expenses now exceed his income because he's now unable to deduct his medical expenses?

not to be terse... but sounds like he is headed for medicaid. Not trying to be mean, but this will mean that people with medical issues or in nursing homes will likely eat thru their assets faster.

 

[pb4uski]

100% of my dad's income goes to his medical expenses. He is completely medically dependent for everything from feeding to the toilet. For now, he can deduct his entire income and not pay any federal income tax because of this. He has a pension, Social Security and a VA stipend for his income. If this deduction goes away, it will cost him about $500 a month. Meaning he'll be at least $6,000 a year short on making his expenses. What's he supposed to do when his expenses now exceed his income because he's now unable to deduct his medical expenses?

I guess that I'm a bit perplexed. Three elderly women that I have handled finances for that have Medicare, Part D and Medigap pay next to nothing for medical expenses.... virtually everthing they incur is covered by Medicare or Medigap. So how can 100% of his income go to medical expenses?

If a single person had $6,000 in tax you'd have to have ~$60k of income and perhaps more since part of SS isn't taxed... that is a lot to go for medical expenses.

There must be more to this story.