Financial planning can feel overwhelming, unless you have some expertise. In this episode, get some practical, wide-ranging insights from a true expert about how families can take a smarter, more intentional approach to finances. Keith Hiatt (CPA, AEP, CAP) is a partner at Breslow Starling Advisors LLC and partner at Breslow Starling Frost Warner Boger Hiatt PLLC. Keith has more than 40 years of experience working with corporations and individuals on tax, estate, retirement and financial planning and preparation. He makes the case for an annual financial “checkup” that goes far beyond filing a tax return. He also suggests that charitable giving can be structured to align with both your values and your financial goals. Financial planning does not have to be overwhelming, especially when you work with a professional. (This segment is informational, not tax advice.)
This segment is informational, not tax advice.
For more information:
https://www.irs.gov/
https://breslowstarling.com/
https://www.nobleknights.org/ways-to-give
Gayle:
Today we're talking about something that affects nearly every family: financial planning.
We'll cover a number of important topics, like tax preparation, charitable giving, and creating a financial road map.
I sat down with Keith Hiatt, a CPA with Breslow Starling, for this important conversation. Keith wants families to know that there are often smarter ways to structure charitable donations—strategies that benefit both the causes you care about and your family's financial situation. Let's dive in.
Keith:
I think an annual financial checkup is something everybody should do. In fact, you know, if you come in and talk about an annual financial checkup, you're going to talk about things other than just your tax return. You're hopefully going to talk about things like, who are the beneficiaries you've designated on your life insurance and on your IRA accounts? Do you have a will? Have you got a What's your estate plan? What's your legacy? What are you going to do for your kids? How are you, your kids? You know, do you have 529 plans for your kids? Do you have savings accounts? What's your plan?
So there's a lot of vehicles out there that maybe a person's not aware of, that are ways that help them to get where they want to go,
you know.
I am Keith Hiatt, I'm with Breslow Starling. We're a CPA firm, and a lot of people think, when they think of CPAs, they think of tax preparation, tax planning. Hopefully they think of tax planning.
I have had many people come in and they'll talk to me and they'll say, I do my own tax return. I've been doing it for 20 years. Why do I need your help? What is it that you would do to help me? I tell them, keep doing your own return. Our strength is planning is: Let's sit down and talk about it. Let's go through an annual checkup. You know, you don't go to your doctor once every 10 years. Hopefully, if you did, you'd be in trouble, right? So same thing with taxes. If there are things you're doing that are wrong or that you are worried about, or that maybe planning would help you to solve, or maybe there's something you like to do for charity. Say, Hey, look, I'm not, I'm not doing anything for charity. I don't think I'm providing any benefit. What can I do differently? Well, that's where we have a sit down meeting.
So for example, if a person asks me, “Keith, I want to give cash,” I'm going to ask them, “Well, do you have appreciated property?” And why would I do that? Well, because if they have a stock they bought for $10 a share, and it's now gone up to $100 a share, sure, they can go out and sell it, but if they sell it, they're going to have to pay the tax on the gain, whereas if they donate that stock to charity, that $100 value now stock, they'll get a write off for the full $100 and not ever, not have to pay tax on the difference, which is a powerful way. So it has to be appreciated property you've held at least a year. So anytime you've got appreciated stock, assets that have gone up in value, it's a great way to give. So it doesn't change. You know, they're still giving $100 to charity, but it changes their personal situation in that they didn't ever have to pay tax on that appreciation. So by doing that, it really makes a difference.
So really, what everyone does year in, especially this time of year, is year end planning.
They do a tax estimate. They kind of look at, where am I, what is my tax bracket? What's my situation? 90% of Americans are used to standard deduction. They don't itemize. They use standard deduction. Such a large number, 90% do standard deduction. So for those individuals who give maybe $1000, $2000 a year, well, they might want to wait till January. We usually tell people, give in December, right. Rush around, give before year-end. But now we're telling them, “Hey, if you're given to charity next year, in the new law, there's going to be $1,000 deduction per individual single taxpayer, $2,000 on a joint return for cash gifts to charity.”
So if I'm the, I'm the person who gives, you know, $1,000 every year to charity, and I use a standard deduction, then it might make sense for me not to give in December, but to wait until January. January is the new December.
Now, if I'm an itemizer, whereas I give a lot to charity, I have mortgage interest, I've got taxes, and every year I'm itemized, and then my situation is a little different. I might be one of those individuals. For example, I have a client who, every year gives $10,000 to charity, and every year they use a standard deduction. So what benefit are they getting from their from their contribution to charity? I mean, obviously they're getting a real important benefit, more important than taxes. So what I tell them to consider doing is bunch, bunch their deduction. In other words, if they're going to give $10,000 a year for the next five years, would they want to consider giving $50,000 this month, before year end? Now that $50,000 plus all their other deductions, they're definitely going to itemize. They're going to be above the limit. They're going to get a benefit for that contribution, whereas if they spread it ten, ten, ten, over the five years, they're not. So I tell them, "Let's bunch it," and they say, “Well, I don't want to give it all to the charity right now.” I said, “Well, that's fine, put it in a donor advised fund.”
Gayle:
Yes, I'm so glad you brought that up. I think people have heard the phrase donor advised fund, but they don't fully understand the meaning. Can you break it down and talk about how it works and who it's the best fit for?
Keith:
Yes, It's the best fit for an individual who perhaps can itemize. Would they benefit from bunching their deductions into one year? Particularly if an individual has an income event, like, if they sell a block of stock, or they sold their business, or they sold a piece of property, and they had a big gain, it might be a year, they want to minimize the tax on that event by giving more to charity. So by putting money in a donor advised fund, they park it there. In other words, if I put $50,000 in the donor advised fund today, I'm the donor. I advise the fund on when that money comes out. So I may want to give 10,000 of that 50 this year, and then next year, give another amount out of the charity, and then the following year, another amount. So I'm advising the fund on which charity gets the money and when they get it. So it's a powerful way to really and while it's sitting in the fund, of course, it's growing. It's invested, so it's growing. So there are a lot of vehicles out there, donor advised funds are powerful tools.
Gayle: So what do you do with somebody who they are seeing an economic incentive, and they have a lot of things they care about, but they haven't given? They don't know where to direct their money. How do you help them? If they say, you know, I'd like to give away $1,000 or $5,000 or what have you, how do you help them know the best place?
Keith:
That's a great question, you know? I mean, it's really: Identify a person's interest, you know, what are they interested in? Do they give to anything? Are they participating? Are they involved in anything? Do their children go to a certain school? Is their church important to them? I want to know, you know, do they have a charitable intent, and which charities interest them?
Gayle:
For families who don't feel like they're in the position today to start making donations, but they'd like to think long-term, how can they plan ahead for the future?
Keith:
You know, Planned Giving is another aspect of it. If you don't feel like you have the funds today or it's something you can't do today, there are other vehicles to make that happen. You know, a life insurance policy – the beneficiary could be a charity of your choice, the school or whoever. I remember I had a lady who didn't feel like she could give very much at all – charitable gift annuities. You know where you give to the charity. But you know her fear was, I need the income stream currently. So you get an income stream currently from that fund of money, but long term, at the end, when you pass, it goes to the charity. So there are some ways, some vehicles, to do that as well, like pooled income funds and shared gift annuities. But you know, I mean, there are ways in your will and in your estate plan to designate charities as receiving a portion of, or through your IRA beneficiary designations, on like your retirement plans, you can name charities as beneficiaries, or partial beneficiaries, 10%, or some percentage you know, of the fund itself. So that's something you definitely could have an impact with.
Probably, though the first thing I'd ask a client is, how old are you? You know, and when you wait, why would you ask someone how old they are? Well, because of this special provision for qualified charitable distributions. You know, if there are 70 ½ or older. Now, why 70 ½ ? I don't have any idea. The IRS just said it used to be that was the date for required minimum distributions from retirement plans. That age is now 73 so it keeps going up, but 70 and a half or older, you can, you can instruct your IRA to directly give to a charity, to donate to a charity. In fact, some IRA custodians are given their IRA people a checkbook saying, “Hey, you can write a check on the IRA to the charity. It goes directly to the charity.” Now think about it. Why would you want to do that? Well, that's a powerful way to give, because on your tax return, if you donate directly to charity, that amount you're giving is not, doesn't show up as income. You know, we accountants use this term adjusted gross income. It's really your gross income. You tow up all your income for the year. You know all that, all your income, and that's your adjusted gross income before deductions. Well, that's a magic number. That number has an impact on a lot of things. Like it affects your Medicare premiums, whether they're going to be low or high than in the next couple of years. It affects a lot of deductions. So you want that number to be as low as possible. So if I give directly from my IRA account as a qualified charitable distribution, I'm lowering my adjusted gross income.
And people may ask, “Well, why don't I just take the money out of the IRA myself and turn around, donate to the charity. Isn't that the same?” Well, for two reasons, no one that doesn't lower your adjusted gross income, okay, that doesn't have that isn't really lower. And number two, if you're not an itemizer, you're getting no benefit for that. You know, you're using a standard deduction. So you always, if you're 70 ½ or older, want to use a qualified charitable distribution you want to go to. It's only out of IRAs, so you want to make sure you do that. That's a powerful, powerful way to give.
Gayle:
If somebody wanted to do their homework a little bit, are there any checklists or websites, books, articles, resources that might help them think about either which vehicle they wanted to use … you just named so many different ones, or what type of recipient … Where would they do any type of homework besides just talking to you?
Keith:
Yeah, that's a great question. One of the, one of the places as far as vehicles goes is the IRS website. Our irs.gov is a website. You can go there, and there's several publications on charitable donations the IRS puts out there. They're pretty good, they're pretty decent. They're free. You can read them, and they talk about different things to ways you can give to charity. Many of the things I've talked about, as well as documentation, you know, record keeping, that type of thing that go along with charity can't just, you know, take a deduction and not keep proper records for it. So that'd be one place I look at and they also list their organizations. It qualifies charitable organizations. Not everybody's a charity. I mean, they might think they are, but, you know, if it's, it's not, some people aren't qualified charities.
Gayle
Thank you so much.