Take time to make a charity checklist

The new tax law changes the dynamic for charitable giving, as many people’s altruistic efforts will not receive the same level of government encouragement — meaning, of course, that the tax deduction for some is not what it used to be. Studies show that this doesn’t matter as much as we might think, but it is still a factor for contributions beyond what just the warm glow of giving would have prompted. A short overview of some of the basic giving vehicles may offer a starting point for those wondering how their past giving patterns may be affected.

First, a larger group of baby boomers 65 and over may find that the higher standard deduction of $25,300 (for married couples including the $1,300 “geezer” bonus) means that he or she will no longer be itemizing deductions, so there goes the tax incentive for a charitable gift. It’s not unusual for someone in this demographic to have no mortgage interest or other items that traditionally dictated the advantage of itemizing.

One option for someone in this situation is to consider making contributions from an IRA or 401(k) plan. Contributions made directly to a charity are tax free as they leave the retirement account, so the fact that they do not increase taxable income amounts to, effectively, a tax deduction.

For those over 70 and a half, the contribution can be counted as part of a Required Minimum Distribution (RMD), which is a forced payout and otherwise subject to tax. This effectively creates an end run around what, for some, would be the inability to deduct a contribution. The money must go directly to a charity and it is identified as a Qualified Charitable Distribution (QCD) on a tax return.

A donor-advised fund is commonly offered by any of the major mutual fund companies, and the advantage of this option is that donations to the fund are deductible the year the fund receives the money. The donor then directs the fund in future years to distribute the money to charities of the donor’s choice at the discretion of the donor. It takes the pressure off having to make last-minute, year-end decisions about to whom, when, and how much to give. These funds have minimums of $5,000 or as much as $25,000 at Vanguard. The money is invested by the fund, but there is some discretion for the donor with respect to risk levels and investment objective. The earnings in the fund accumulate tax free, so account balances can grow significantly if the money isn’t dispersed right away.

Beyond just cash, stocks and bonds, donor-advised funds can accept other forms of appreciated assets, like real estate, which the fund would liquidate. The value upon sale would be the amount of the charitable deduction. For someone whose standard deduction election trumps what would have been a charitable deduction, it could make sense to save up a few years’ of charitable deduction amounts until the dollars exceed the $25,300. For example, if someone earmarked $50,000 to give away, but assembled the money over, say, three years, they could effectively get a deduction (finally) for the amount over the standard deduction in the year they finally contributed.

If you find yourself acting on the challenge of jumping through these various hoops, you might then think about contributing to one of my favorite charities, which is Youth Homes in Pleasant Hill. Since

1965, it has been one of the largest and oldest organizations in the East Bay operating children’s residential programs for troubled youth. Among other services, it trains foster parents and offers a variety of mental health and case management support as well as job training programs. It’s sometimes said that “the wildest colts make the best horses.” Struggling adolescents receiving the right help at the right time can represent the human version of this slogan and become beneficial to our communities.

Also high on my list is Save the Redwoods

League, which is celebrating its centennial this year — thereby marking the effort to save what, 100 years ago, amounted to just the remaining 5 percent of the ancient, old-growth giant trees that had previously thrived in coastal California before being decimated by logging. We have Save the Redwoods, then, to thank for Muir Woods and other great redwood parks.

Steve Butler is the CEO and founder of Pension Dynamics Company LLC. To read past columns and learn more about his book, visit www.pensiondynamics.com and click on resources. Steve can be reached at 925-956-0505 ext. 228 or sbutler@pensiondynamics.com.