Ep. 101 | Exploring Leveraged Charitable Giving
Download MP3Hey, everybody, and welcome back to the Teaching Tax Flow podcast episode 101 today. We're gonna keep this train going with the new trend of doing things on video and audio. But before we do that, let's take a brief moment and thank our episode sponsor.
Ad Read:This podcast is brought to you by Strategic Associates. Are you a high income earner, real estate investor, or successful entrepreneur who is frustrated by having to pay $75,000 or more of annual tax liability? If so, Strategic Associates can help. Your first step to saving 1,000, if not 100 of 1,000, is to contact Roger Roundy at roger@strategicag.net or by calling 801 641-2956, and be sure to tell them TTF sent you.
John Tripolsky:Hey, everybody, and welcome back to the teaching tax flow podcast episode 101. Obviously, if you're watching this on video, you can see we've been doing things a little bit different for a whole whopping one episode before this. You know, we figure we turn a 100. It's kind of a milestone year. You know, it's about as many years as Chris has been practicing taxes.
John Tripolsky:So, you know, we we got some experience got some experience in this game. And the topic today, we are gonna look at leveraged charitable giving. We have a great guest that Chris can introduce here in a moment. You know, I just I figured the longer I can talk, the less he can come back at me with with a dick for my, you know, my ball jokes, my pickleball jokes, you know, it being geriatric tennis, and, of course, how long he's been taxed or practicing taxes. So I guess I'll let him I'll let him say something.
John Tripolsky:How's it going, Chris?
Chris Picciurro:John, it's I would say it's great to be back, but, unfortunately, you're with us. It's just not Kaden and myself. But we do need someone to push the buttons and make us sound good, so that's alright. We would love to have John back on the pickleball courts. I have witnessed this a couple times, and, it's, the kids would say it's cringe worthy, quite frankly.
Chris Picciurro:Yeah. But I think you do have some potential. All of your hockey background comes back. You know, you're you were, you got in an altercation with a mature age woman down in Florida once, but that's a that's another episode.
John Tripolsky:You know what? She she got into it with herself. I just stood there and just stared at her awkwardly. Kinda like if you don't know what this topic is. Right?
John Tripolsky:Like like, leverage charitable giving. What in the world is this thing? You know, I gotta I gotta transition out of this somehow. Kaden, I know you're probably like, who in the world did I commit to giving a podcast with? And before you answer that question, Chris, why don't you go ahead and introduce this this gentleman here to the world?
Chris Picciurro:So I am very excited about this topic and having Kaden as our guest, and, you know, obviously, the Teaching Tax Flow podcasting community is a very widespread community, but sometimes I'm able to bring in people that I work with on a weekly basis from our private CPA practice and and shed some light on some of the tax strategies that we use within our private CPA practice and other people in the teaching tax law community that the average taxpayer is either not familiar with or never exposed to and quite frankly, quite a few tax professionals as well. John, you know, part of what I do is I work with a couple of quite a few tax professionals and as far as in the mastermind group and in coaching. So it's amazing how little tax planning knowledge there is out there, and that's really the reason we we do this. But, so we're gonna talk today about leveraged charitable giving. One of the thing before I introduce our guest, one of the things I really like about this is that, we know that tax laws are written to encourage and discourage certain behavior and which one of the one of the three laws of teaching tax flows that tax agencies are your involuntary business partner, and we know that w you know, people with the high w two wages are typically taxed at an extremely high marginal tax rate and don't get to take any deductions.
Chris Picciurro:So your w two wages are taxed as gross income, rental income, business income's taxed as your net income, and there aren't a lot of great strategies for people with a high amount of w two wages. So that doesn't mean that the strategy is only for people with high w two wages. Alright. I will stop. I'm gonna introduce, Caden Gunnell, from Strategic Associates, and we are really excited to have him.
Chris Picciurro:Caden, thanks for joining us.
Caden Gunnell:Hey. Thanks for having me, guys. I'm happy to be here.
Chris Picciurro:Now fun fact, Caden, didn't you just complete a an impressive feat, a half marathon? Or or Define that depends
Caden Gunnell:who you're talking to. Depends who you're talking to, man. It was it was my first half marathon. It's now been 2 weeks, and I can finally walk without pain, so that's a good thing. But, yeah, no.
Caden Gunnell:It it was a good time, something my wife and I committed to, like, probably only 8 months ago. We jumped into it a little quick. I had, I was nursing a little bit of an Achilles injury because I was just an uneducated runner. If you're a runner, you know you can jump into it way too fast sometimes, but, I was able to finish, made it through. That is great.
Chris Picciurro:So Well, congratulations on that, and we one of the things we talk about is that your tax return should be a verb, not a noun. So your tax assurance return shouldn't be a sprint. It should be a half marathon and something to think about all year round. So, well, tell us a little bit about yourself. I know you just mentioned that you're you're married and and also, give us a give us an introduction to what leveraged charitable giving is.
Caden Gunnell:Yeah. So, I'm Caden Goh. I'm a junior partner here at Strategic Associates. I get to kinda lean on the credibility of my higher ups. For 15 years now, the partners here have been not really ever involved in the tax preparation, but like you've mentioned, Chris, we're we take a proactive approach to the planning side, and we consider ourself a connector of solutions.
Caden Gunnell:K? So, you know, our our practice, much like Chris, we work together in helping diagnose the tax issue. And then they're solving their find the tax issue and then diagnose the solution. Right? Find the type of income, what we can and what we can't do, and then implement the appropriate strategy.
Caden Gunnell:We've got a team who studies the tax code, and they enjoy studying it. That's not me. I just I I present, right, and I connect you with the solutions. But one of those is, as you've mentioned, leverage charitable Gitmeid, which, not to beat a dead horse, again, it it's very, very, powerful for our high w two clients because, again, that charitable donation, much like if I just donate my to my church, that's gonna be what we call below the line on the tax return. Right?
Caden Gunnell:It's on the personal side. So the income type really doesn't matter. The difference, between just a standard charitable gift and one that we call that's leveraged is if I was to just take $100 and donate it to my to the church. Let's just say I'm just using the church as an example. It could be anything.
Caden Gunnell:It could be anything. Right. 501c3 registered charity. Let's say I gave a $100, in tithes. It's a one for 1 donation.
Caden Gunnell:I donated them a $100. If I have proof of that, I get a put that on my personal tax return on on that line item, and I get a a deduction for that personal donation. Right? With leverage, we're gonna take the same $100 and create a 1 to 3, 1 to 4, and sometimes all the way as high as 1 to 5. Donation, meaning I could take the same $100 but create a $500 donation.
Caden Gunnell:That's the mechanics on the numbers. K? And and how we get there is something we'll continue to discuss, but that that's what that's what we're doing is we're taking a certain dollar amount. We're leveraging it to create a bigger donation. Does that does that make sense in a simple form what it
Chris Picciurro:is? Absolutely. It's it's kinda like, let's say, you were trying to buy a home. Right? And you've saved a $100,000, which is a huge huge accomplishment.
Chris Picciurro:And you could shop for a home and pay cash for the $100,000, or you can put that $100,000 to work and get a mortgage and increase your buying power up to 500,000. So with leveraged shared giving, what it's doing is it's really leveraging the amount of cash that you've saved, that you've committed, that if you're you have charitable heart, which many, many people do, they could put that to use and get a larger, donation deduction for that cash outlay. So in Caden's example, let's say someone was to donate good. Let's let's use a $100 just just for instance. Yeah.
Chris Picciurro:Someone donates a $100. Let's assume you can itemize your deductions, and let's assume you're in the 25% marginal tax rate. Now that that that could vary because everyone's marginal tax rate's different. There is no 25% marginal tax rate, but that's to say there was. And some states actually give you a deduction for charitable donations as well.
Chris Picciurro:So we've I mean, Kaden, we've worked on cases where someone's in 45 like, almost 50% marginal tax rate in certain states. You know, John, we you know, we love to throw California under the bus, but we're gonna do it because it's gotta be enough. We don't have to minimize deductions, and they're at that higher marginal tax rate. But let's say you're in the 25% rate. What would happen is for that $100 that you donated, you'd receive But let's say I mean, if someone's itemizing, let's say they're in the let's say they're in the 30%.
Chris Picciurro:Let's just go with 30. Okay? K. They they put get put a $100 a $100 under their charity. That would reduce their tax taxable income by a $100, and then during the 30% marginal tax bracket, it would reduce their tax by $30.
Chris Picciurro:With leveraged charitable giving, if they had if they got a 5 to 1 deduction, meaning $100 goes in, $500 deduction, you multiply that by 30%, the tax benefit now is a $150 for that same $100 instead of $30. Am I explaining it okay, Kaden?
Caden Gunnell:Yes. 100%. A 100%. I'm understanding. I'm following.
Caden Gunnell:And so go ahead.
John Tripolsky:So that actually I had a question for you too. Go ahead. No. You're good. I was gonna say, here's a here's a comment from the the peanut gallery, and this is always fun because, again, I hang out with smarter people.
John Tripolsky:So I get to ask the dumb questions and justify it.
Caden Gunnell:It's here.
John Tripolsky:So it's for a lot of people, it may have this may be the first time that they've heard of this. Right? They're like, wait a minute. Okay. So leverage charitable giving.
John Tripolsky:Kinda get a concept what it is just by the name. Right? But this is not it's a tax strategy. Right? It's not a well, if I have a $100 here to give to pastor Joe, I don't it's not me giving a $100 and then him receiving 500.
John Tripolsky:Right? So just to clarify a a little bit there. Right?
Caden Gunnell:Well and while and while it is while we do wanna clarify that it is a a tax strategy, any of these one strategies, there is intrinsic value. Right? These are actual registered charities. This isn't being done just to help someone save money in taxes. Anytime we're doing anything to save money in taxes, if that's our only goal, we're probably not doing the right things.
Caden Gunnell:Right? And so that there is intrinsic value here, but again, utilizing leverage allows you to utilize less of your your cash, but create a bigger gift on the intrinsic side because there is gonna be a gift that's donated, whether it's cash or whether it's an actual product, right, or a service, whatever it be. You're gonna increase that gift, but then, yes, you are gonna, in return, increase the tax savings because you're utilizing less of your cash to create a bigger donation amount.
Chris Picciurro:Right. So from a tax perspective, we we talked we've talked before about the strategy of don't we actually had an episode, on noncash donations. So if you Yes. You have a noncash donation, you can take a deduction for that, for the fair market value of that donation. So if I was to inherit some random painting, and it went up in value and I donated that in a in a real donation, right, this isn't me running down to to, the Goodwill with a half a $1,000,000 painting without a Right.
Chris Picciurro:Right. And that's where we I would get a deduction for the fair market value. So the charity the people receiving the the the benefit from the levered shareable giving is getting something with an economic value of 5 times the cash that was outlayed. Is that fair to say?
Caden Gunnell:And it's determined and it's determined via official appraisals, which is one of the rules the IRS has, as you know. Right? There there's gonna be appraisals in certain forms and certain processes that need to be followed. But whatever the service, product, or cash, right, whether it's cash or noncash, right, the fair market value based on that appraisal is what's gonna determine your donation amount.
Chris Picciurro:Absolutely. So let's talk about the donation deduction. You know, we know so just if you're listening right now, it from a federal tax perspective, to to take advantage of a charitable donation deduction, that's a mouthful, you have to itemize your deduction. Right? And Yes.
Chris Picciurro:It is limited, though. It's limited to 50% in general of your adjusted gross income. That's the in general. So in other words, if your adjusted gross income is 6 yeah. In general, $600,000, the maximum charitable deduction, even if you gave away 6 all $600,000 you earned, you would only get a deduction for 300,000.
Chris Picciurro:You just get Correct. In the current year. Now a guy like John, who is very charitable, I'm sure he gives away all of his income. Now if you would issue that, it doesn't mean that that the additional $300,000 goes away. It actually carries forward to the next year.
Chris Picciurro:So if you're in a situation, and we've had clients that this happened where, because when you're doing tax planning, you're always shooting a moving target. And at their donation, they give away a little over 50% of their their taxable or adjusted gross income. It doesn't go buy buy. It just carries forward to the next year.
Caden Gunnell:Yep. Just to the next year. And so you you can miss the mark a little bit. If you overshoot, it's totally fine. It carries forward to the next year.
John Tripolsky:Mhmm. And these are great to hear that, you know, these strategies exist. Right? A, that somebody understands them enough to obviously explain them to people, but then trying to figure out how they fit into specific situations for specific individuals, let alone comfort level with certain stuff. And, I mean, honestly, even just I mean, like, everybody knows that listens to this and, Katie, we would've spoke a little bit earlier.
John Tripolsky:You know, I've known Chris for 24 ish plus years. And to be totally honest, maybe even, like, 3 or 4 years ago, I started to realize that, a, a tax bracket is not really a a thing, if you will. Tax day is not really a thing, although it my birthday is right around there, so that's that's enough holiday for it. That's a thing. Because, you know, let's go throw let's throw that into the mix.
John Tripolsky:But then also, like, taking, you know, tax planning into account, you know, I I feel like us, you know, non tax people, we're just kind of, conditioned if you will, saying, hey. You know what? Your taxes are what they are. You can't really control them. And through tax planning and strategies and individuals like both of you gentlemen, you know, being able to blend strategies together being one thing, but then also looking at the picture and multiple people being involved in scenarios and, you know, looking forward, you know, looking back a little bit as well, but you really get to control, you know, as we mentioned it or I think Chris is famous for saying, you know, control the relationship or own the relationship with the IRS.
John Tripolsky:You absolutely can, and you're not, you know, you're not gonna end up behind bars like Capone or anything like that. It's this is completely within the realm of the quote, unquote IRS playbook. It's just it takes specific individuals that know it and understand it and can kinda keep you along that line. Like, Kenny, you had mentioned a great point as well. It's, you know, the appraised value of something.
John Tripolsky:So Chris's, you know, $1,000,000 painting over there, he might think it's worth a $1,000,000, but, you know, it might get appraised at, you know, $24.85 because, you know, he got out of the McDonald's drive through in the eighties. Who, you know, who knows? He just, to him, it's worth more than it really is, but well, you you don't know that. Right? So, I mean, I appreciate that being that there is that process that needs to get followed and that there's pretty strict, it sounds like, guidelines and the processes involved so it keeps everybody, you know, within the bounds of, you know, those that are set forth by the IRS.
Chris Picciurro:Let's talk about with Cadence some of the rules a couple of the the nuts and bolts, of this type of strategy and some of the type of clients that they they work with. Obviously, we work on a lot of mutual clients like I said, but they work with clients and and taxpayers all over the country. So for non cash donations, we know that the donation amount can't be more than 50% of their adjusted gross income in general. Correct. And, you know, trying to paint the picture of what avatar of who, like, who might this make sense for, what are typically the minimum amount of contributions as far as cash outlay that someone, that would be considering the strategy has to has to commit?
Chris Picciurro:So, typically, the minimums is gonna be no less than about $25,000.
Caden Gunnell:And if we use our example of 1 to 5 leverage, you know, 25,000 would be creating a $125,000 donation. And so, we wouldn't want any less income than about 250,000 of taxable income. Because as a reminder, if you were a business owner, if your w two is pretty straightforward, but if you had, like, a gross of 500, if you got after your business expenses and deductions, lowered that AGI, that taxable income to 2.50, that's then when charitable kicks in. When we talked about stacking strategies, we do help our business owners do that. We'll lower it as much as we ethically and legally can within the intent of the code with expense deductions that are available.
Caden Gunnell:From there, you could then do a charitable to further reduce it by another 50% generally. Makes sense?
Chris Picciurro:That's a great point. Great point, Gayden. And I I'm gonna steal stacking. I've used the term blending
Caden Gunnell:Nice. Strategies,
Chris Picciurro:but but, yes, I mean, because this isn't a strategy that always has to live in a silo. So if you're looking at this, your your w two wages are taxable, let's say, just to gross income, because it could be any type n. Yeah. It's $250,000 or more, and you do have a have a charitable heart, and you're this is something that you might wanna consider, because at that point, again, you you can especially if you're in a state that allows for a itemized deduction for a donation, that then this is something you wanna consider because you would you would see a a good benefit from it. And Mhmm.
Chris Picciurro:So if someone does want to partake in, you know, and leverage shareable giving, let's say, in 2024, is this something that they would they would they would need to do every year indefinitely, or is there what's what's kind of the time frame for that? When
Caden Gunnell:it comes to the year that you're trying to get the benefit, I should say, or the year you're trying to donate. Right? Right? Yeah. Just has to be done like most strategy.
Caden Gunnell:The money has to be moved prior to the year's end. Right? Mhmm. If you wanted to repeat it year after year, with a lot of our strategies, it's you donate and you're done. Right?
Caden Gunnell:There's gonna be forms you receive to prove the donation, gift receipts, some of them distribute k ones. Whatever it be, though, that's gonna be given to you before it's time to prepare your tax return. So if you wanted to utilize the same strategy the next year, our firm is constantly finding these opportunities. At this point, we're actually having them brought to us to where we vet them out and we get super comfortable, super confident before we're ever gonna utilize it as an option for a client, right, but yes, this is something that could be done year over year.
Chris Picciurro:Right. So it's something that you could do every each year, but you don't require, you know, we've had some business owners, and I'm not saying that, you know, a defined benefit plan isn't a bad strategy, it definitely can be a good strategy. However, that type of strategy typically is a multi year commitment where this is a year to year commitment. Absolutely. And there there's different and then you made another good point, Kaden, that if you're if you're thinking about leveraged charitable giving, you know, if you work with Kaden and myself or don't work with us, make sure that whoever you're working with or you're even trying to to do something on your own somehow, it's so important to have that substantiation.
Chris Picciurro:And that what that means is that those are documents, that are provided to you at tax preparation time that substantiate the deduction legally and ethically, meaning qualified appraisal or that underlies maybe a k one form or a donation receipt. It's not that this isn't something you should be doing willy nilly on your own to slap on a number in on your tax return. The IRS is getting extremely, but more sophisticated. And Yes. They are using AI, and they are using technology to to find anomalies, and, you know, if you do get examined, you want to make sure there's nothing wrong with taking a donation that you're entitled to.
Chris Picciurro:Just make sure that you have the proper documentation. Can you kinda tell us about what are some of the standard, you know, as we kinda come to the end here, what are the standard type of documents someone should expect if they're gonna, get into Leveraged Charitable Giving?
Caden Gunnell:Absolutely. Yeah. If you're gonna get into Leveraged Charitable Gifting with a a product that we connect someone to, typically, you're gonna expect to see, a k one if it's a, you know, a raise for a partnership that's actually being utilized to purchase the product, as well as a gift receipt. You're always gonna see an official gift receipt that goes over how the fair market value was determined. Those are the number one things I would look for.
Caden Gunnell:There's a few other tax forms we could there's actually a list. It just depends on on the opportunity, but those are 2 of the biggest ones. If we're dealing with cash donations, not as much because fair market value of cash, it's pretty easy to determine. So it's really just gonna be gift receipts in that situation. But, yeah, with non cash donations, look for, typically to see a k one from the partnership as well as the gift receipt itself.
Chris Picciurro:No. We really appreciate it. Go ahead, John. I'm sorry.
John Tripolsky:No. You're good. And and one more question too for you, Cadence. Obviously, now we're talking here to September of 24. Say, I'm just hearing about this.
John Tripolsky:Say, I do meet the qualifications. So what we had mentioned, you know, 250 k or above of taxable income. And say, I just have been giving throughout the year, say, I'm up to, we'll just call it, 20,000 throughout the year, 15,000. Again, just hearing about this. So is there anything that I might need to do different to meet the qualifications of this?
John Tripolsky:Say, I'm like, you know what? I've been given all year. Crap. I wish I heard about this January 1. Shoot.
John Tripolsky:Or is it really just based off of what you said? As long as there's proper documentation in place, this could be something that started wherever throughout the year. Just You
Caden Gunnell:can start where you're at. My my my advice would be you start where you're at. And if it is something you're just hearing about and the beauty is we do have I mean, we're talking in September. I it's now September. That is crazy to me.
Caden Gunnell:Right. But but at least we're not talking in November, December when some of these programs do they do oversubscribe, some of them fill up. And that's not just a do it now tactic. That's just the reality. And so we if this is something you're hearing for the first time, you feel like someone that does, you are charitably inclined, and Chris is helping you out, especially let us know.
Caden Gunnell:We'd love to look at your situation and find out if charitable giving is right for you.
Chris Picciurro:Absolutely. I would say, yeah, if you're if as we put a bow on it, if you're if you are charitable charitably inclined and, you you know, you're at a income level of $250,000 or more, Even if you're a sliver less, you know, remember that deduction can carry forward. Yep. That's, like, you know, inquire, and and it's something that I agree with Caden. I mean, we've had, unfortunately, we've had people that wanted to to move forward with tax strategies and were a little too hesitant, and the boat left the the shore, and unfortunately, some of the some of these strategies do get, you know, fully subscribed.
Chris Picciurro:But, yeah, this this has been a a a strategy that we've had we've had people in our community use and and use it happily. So, Kayden, thank you so much for coming on, and, Yeah. And we'll we'll leave all of your contact information and and some ways to reach out to you, in our show notes and and always in the teaching tax law community. Yeah. Absolutely.
John Tripolsky:Thank you. Thank you, Kent. I appreciate it. Yeah. I mean, the the best testimonial to this, right, is I knew the title of this show.
John Tripolsky:I knew nothing about it in full transparency. And now now I feel like I can I can go on the street corner and tell everybody about this thing? So you guys did a great job of explaining it to it really from both sides of the fence. So I appreciate that. I know our our audience will as well.
John Tripolsky:And and, Chris, to kinda echo what you said as well. You know, we'll put all the contact information as well as some other resources in the show notes. So on YouTube, you guys, anybody that's watching this, it'll be in the description. Spotify, Apple, anywhere you listen to podcasts, you can listen to the audio component of this It will be in the show notes as well. We do have to cut it short because Chris has to get to a hair appointment.
John Tripolsky:That's the that's the quiz for anybody that's actually watching this. You'll get the joke. But, until next time as we close it out with, we will see everybody back here next week, roughly about the same time, but a different topic here on the Teaching Tax Flow podcast.
Disclaimer:The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through Cabin Advisors, a registered investment adviser. Securities are offered through Cabin Securities, a registered broker dealer.
Disclaimer:The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum, and you should carefully examine the risk factors and other information contained in the memorandum.
