Qualified Charitable Deductions Part 2

Discussion in 'Financial Planning' started by FranksPlace2, Nov 11, 2011.

  1. FranksPlace2

    FranksPlace2 Guest

    Thank you all for the excellent discussion of QCDs. I was told by
    Fidelity that donor advised funds do not qualify.

    An alternative is to create my own charitable fund. Legalzoom
    suggests it is not that hard. I am sure there are rules to follow
    and annual reports to file but once the first year is done, it
    shouldn't be that hard.

    I could transfer funds into my charitable fund annually and then dole
    it out to established charities. This would count toward my RMD,
    avoid taxes and help charities.

    What am I missing?

    Frank
     
    FranksPlace2, Nov 11, 2011
    #1
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  2. FranksPlace2

    JoeTaxpayer Guest

    On 11/11/11 8:53 AM, FranksPlace2 wrote:

    > An alternative is to create my own charitable fund.


    > What am I missing?


    Why do you think your fund would be ok for this purpose? I'd be near
    certain it would fall into the same category the Fidelity and Schwab
    accounts are in. The donate-your-RMD needs to be a completed gift to the
    end charity.
     
    JoeTaxpayer, Nov 11, 2011
    #2
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  3. FranksPlace2

    Pico Rico Guest

    "JoeTaxpayer" <> wrote in message
    news:j9ji23$cvf$...
    > On 11/11/11 8:53 AM, FranksPlace2 wrote:
    >
    >> An alternative is to create my own charitable fund.

    >
    >> What am I missing?

    >
    > Why do you think your fund would be ok for this purpose? I'd be near
    > certain it would fall into the same category the Fidelity and Schwab
    > accounts are in. The donate-your-RMD needs to be a completed gift to the
    > end charity


    so, create your own private charitable foundation.
     
    Pico Rico, Nov 11, 2011
    #3
  4. FranksPlace2 <> writes:

    > Thank you all for the excellent discussion of QCDs. I was told by
    > Fidelity that donor advised funds do not qualify.
    >
    > An alternative is to create my own charitable fund. Legalzoom
    > suggests it is not that hard. I am sure there are rules to follow
    > and annual reports to file but once the first year is done, it
    > shouldn't be that hard.


    Do you mean a private foundation? In order for a private
    foundation to meet the rules to qualify for QCDs, there
    are a bunch of hurdles which you probably don't want o
    have to cross - for example, it must meet the "conduit"
    rules and pay out 100% of contributions received in the
    given tax year (for which it is trying to qualify) by the
    15th day of the third month after the close of that tax
    year, in addition to the normal 5%/yr distribution
    requirements.

    Moreover, most private foundations are "non-operating"
    and their main purpose is making grants to other charities.
    Such private foundations are also not qualified for QCDs.

    If you're going through all of this just to make QCDs, you
    are almost certainly working way too hard at it and it is
    very unlikely that you'll come out ahead.

    > I could transfer funds into my charitable fund annually and then dole
    > it out to established charities. This would count toward my RMD,
    > avoid taxes and help charities.
    >
    > What am I missing?


    I'm wondering what you're seeing - would you mind letting
    us know exactly what structure of "fund" you are taking about?
    Do you have a link to something on LegalZoom's site?

    For folks with very substantial wealth, QCDs are not as
    much of an issue - they take their RMDs and they make their
    charitable contributions deductible on Sched. A, and they
    are done. And often they have appreciated assets to donate,
    thus doubly-avoiding taxes. With very substantial wealth,
    they may well be interested in the private foundation route.

    For folks with moderate wealth, donor advised funds really
    are a fabulous and only recently widely-available tool.

    But in neither case do QCDs really play well with them.

    --
    David S. Meyers, CFP(R)
    http://www.MeyersMoney.com
    disclaimer: for educational purposes only. This is not financial advice.
     
    David S Meyers CFP, Nov 11, 2011
    #4
  5. FranksPlace2

    FranksPlace2 Guest

    "I'm wondering what you're seeing - would you mind letting
    us know exactly what structure of "fund" you are taking about?
    Do you have a link to something on LegalZoom's site?"


    Here is the link to Legalzoom to set up a 501c3:

    https://www.legalzoom.com/non-profits/non-profit-corporation-overview.html

    My goal is to give the money to charity without running it through my
    1040. If I take the contribution as income, it increases my AGI which
    has negative consequences and, since I do not itemize, I can't take a
    deduction. A QCD solves that.


    "Moreover, most private foundations are "non-operating"
    and their main purpose is making grants to other charities.
    Such private foundations are also not qualified for QCDs."

    United Way and Catholic Charities have a main purpose of making gifts
    to other charities. I am sure they are ok for QCDs.

    The IRS rules http://www.irs.gov/retirement/article/0,,id=234258,00.html
    say it must be to a "Qualified Charity" but, based my limited
    research, do not define qualified charity beyond being a 501c3.

    Evidently this QCD opportunity ends this year. It's not worth doing
    just for one year. But I think it is a legal option if I have no
    control of the non-profit.

    Frank
     
    FranksPlace2, Nov 12, 2011
    #5
  6. FranksPlace2

    JoeTaxpayer Guest

    On 11/12/11 11:04 AM, FranksPlace2 wrote:

    > My goal is to give the money to charity without running it through my
    > 1040. If I take the contribution as income, it increases my AGI which
    > has negative consequences and, since I do not itemize, I can't take a
    > deduction. A QCD solves that.


    You present a not-so-common set of desires. From my experience, the QCD
    appeals to those who donate enough to make a difference, yet don't
    itemize. By "difference" I mean enough to make the savings worth it, a
    $100 donation hardly worth the extra paperwork. I understand QCD has a
    $100K limit, but also imagine most people who are looking to donate that
    much are already itemizers. So, with no supporting data, I imagine that
    the average sum that takes advantage of this rule is probably in the
    $5-10K range. Enough to be worth the effort, but not go through setting
    up a foundation to help the process.

    As you mention, it expires again this year, unless our congress folk
    extend again. I tip my hat to you, for the fact that you are generous
    enough in your donations for this tax savings to be meaningful.
     
    JoeTaxpayer, Nov 12, 2011
    #6
  7. FranksPlace2

    dvsarwate Guest

    On Nov 12, 11:58 am, JoeTaxpayer <> wrote:
    > On 11/12/11 11:04 AM, FranksPlace2 wrote:
    >
    > > My goal is to give the money to charity without running it through my
    > > 1040.  If I take the contribution as income, it increases my AGI which
    > > has negative consequences and, since I do not itemize, I can't take a
    > > deduction.  A QCD solves that.

    >
    > You present a not-so-common set of desires. From my experience, the QCD
    > appeals to those who donate enough to make a difference, yet don't
    > itemize.


    As FranksPlace2 said, an increased AGI can have negative
    consequences, and these can occur regardless of whether
    the taxpayer itemizes or not. For example, Medicare premiums
    that some elderly taxpayers are required to pay are based on
    AGI (actually MAGI), and not on taxable income (post standard
    or itemized deductions). Similarly, taxability of social security
    income depends on AGI. Thus, given a choice between donating
    $X to a charity out of income included in AGI, and making a QCD
    (which can also be counted as part or whole against the Required
    Minimum Distribution (RMD) from an IRA), the latter might
    be preferable, especially if a reduction in $X from AGI would
    cause a reduction in Medicare premiums, taxability of Social
    Security income etc.

    Dilip Sarwate
     
    dvsarwate, Nov 13, 2011
    #7
  8. FranksPlace2 <> writes:

    > "I'm wondering what you're seeing - would you mind letting
    > us know exactly what structure of "fund" you are taking about?


    > Here is the link to Legalzoom to set up a 501c3:
    > https://www.legalzoom.com/non-profits/non-profit-corporation-overview.html


    https://www.legalzoom.com/nonprofits-faq/private-foundation-public-charity.html

    In other words, you might consider what you're doing to be
    a public charity (and thus have gone 501c3 with it) but the
    IRS may differ. And the goals of the charity will likely
    be taken into consideration, too.

    I don't think this will work.

    > My goal is to give the money to charity without running it through my
    > 1040. If I take the contribution as income, it increases my AGI which
    > has negative consequences and, since I do not itemize, I can't take a
    > deduction. A QCD solves that.


    I understand that. But you also seem to want to keep some
    level of control over the money - which the QCD restrictions
    were explicitly written to keep from happening.

    > "Moreover, most private foundations are "non-operating"
    > and their main purpose is making grants to other charities.
    > Such private foundations are also not qualified for QCDs."
    >
    > United Way and Catholic Charities have a main purpose of making gifts
    > to other charities. I am sure they are ok for QCDs.


    They are. They are also not donor-advised funds, donors
    have no control whatsoever with respect to how the money
    gets used, and finally, they are fully public charities,
    not private foundations.

    > Evidently this QCD opportunity ends this year. It's not worth doing
    > just for one year. But I think it is a legal option if I have no
    > control of the non-profit.


    It might just work. I don't think so, and it's a risk
    I wouldn't take nor would I recommend it to anyone - if
    the IRS disagrees with respect to the classification of
    the charity as a public charity vs. a private foundation,
    the problems caused by that would be unpleasant.

    I really don't mean to discourage you from your generous
    inclination to use QCDs to give to charity while maximizing
    the tax benefit to yourself. I commend you - no matter the
    tax benefit, you're still going to end up with less money
    in your own pocket at the end of this. I'm afraid that
    the easiest thing is simply to choose a couple of charities
    this year and make big donations directly to them if you
    want to take advantage of the QCDs. Or don't go the QCD route,
    give up some of the money to the government that you'd otherwise
    have saved, and donate the difference to a DAF. Charities
    will ultimately get a bit less from you this way, and the
    government more, but you still end up with the same cash
    in your pocket and you still get to have a little control
    over where (and when) the money gets distributed to the
    charities.

    One perhaps underappreciated benefit to the DAF is that
    you no longer care about the "year-end drives" when everyone
    is trying to get you to make your contributions to this
    charity of that before the year-end so you can get the tax
    benefit. It's already had the tax benefit whenever you
    made the contribution, so if you have the DAF make a
    distribution in December or you make it in January,
    it makes no difference tax-wise whatseover. It's nice to
    not care about the timing anymore.

    And that's another possibility - if you accellerate your
    giving - combine what you'll be giving to charity for the
    next couple of years into one contribution to a DAF, you
    may be giving enough to benefit from itemizing this year.
    Then next year and the year after (or whatever), just make
    distributions from the DAF instead of directly from your
    pocket. It's kind of like when folks prepay property taxes
    in alternate years so they itemize in one year, take the
    standard deduction in the next, and so on.


    --
    David S. Meyers, CFP(R)
    http://www.MeyersMoney.com
    disclaimer: for educational purposes only. This is not financial advice.
     
    David S Meyers CFP, Nov 13, 2011
    #8
  9. FranksPlace2

    FranksPlace2 Guest

    On Nov 13, 1:18 pm, David S Meyers CFP <> wrote:
    >
    > I don't think this will work.
    >
    > > My goal is to give the money to charity without running it through my
    > > 1040.  If I take the contribution as income, it increases my AGI which
    > > has negative consequences and, since I do not itemize, I can't take a
    > > deduction.  A QCD solves that.

    >
    > I understand that.  But you also seem to want to keep some
    > level of control over the money - which the QCD restrictions
    > were explicitly written to keep from happening.
    >
    > > "Moreover, most private foundations are "non-operating"
    > > and their main purpose is making grants to other charities.
    > > Such private foundations are also not qualified for QCDs."

    >

    ...>
    > --
    > David S. Meyers, CFP(R)http://www.MeyersMoney.com
    > disclaimer: for educational purposes only. This is not financial advice.


    This is the IRS requirement for the charity

    "A QCD is generally a nontaxable distribution made directly by the
    trustee of your IRA (other than a SEP or SIMPLE IRA) to an
    organization eligible to receive tax-deductible contributions."

    http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000255706

    So if a would-be legalzoom application is approved as a non-profit,
    the charity would be qualified.

    However I agree that I cannot control the charity in any way. Someone
    else would have to create and operate the charity.

    Frank
     
    FranksPlace2, Nov 14, 2011
    #9
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