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Maximizing the Benefit: Tax Efficient Charitable Giving Strategies Part 2 of 3

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Part 2 of 3: Maximizing the Benefit

In Part 1 of this series, we established what it means to be charitably inclined, standard vs itemized deductions, and Bunching. The second part of this series will focus on how to make sure you’re maximizing the amount your charity receives and getting the maximum tax benefit. Several potential strategies include trusts, but for this article, we will keep the scope to strategies that don’t involve trusts and giving during your lifetime.

Donating Highly Appreciated Assets

"You need to stop giving cash to charities.”

We’ve shared this with clients, and while it’s surprising at first, it makes sense when explained. This comes up when someone has non-retirement investments with significant gains and they’re donating enough to make these strategies worthwhile. There’s no specific rule on what “donating enough” is, this generally applies when charitable giving is in the thousands rather than small, occasional donations.

Many non-profit organizations can accept in-kind donations of stocks, bonds, mutual funds, or other liquid investments. Donating in-kind allows the donor to avoid capital gains, and the non-profit can sell the investment without incurring capital gains either (assuming it qualifies as a 501c3 organization). It’s important to coordinate with your tax professional, as there are limits on how much of the donation is deductible. 

Let’s pretend you bought a stock for $1,000 that’s now worth $4,000, and you want to use the stock to make a charitable donation.

Scenario 1:  Sell the stock and give the cash to a qualifying charity

  • Sell the stock for $4,000 resulting in $3,000 long-term gains.
  • $600 is paid in capital gains taxes
  • The charity receives $3,400
  • You get a $3,400 potential* tax deduction

Scenario 2:  Donate the stock in-kind to a qualifying charity

  • $4,000 of stock is transferred in-kind to the charity
  • No capital gains taxes are paid by either party
  • The charity receives $4,000 
  • You get a $4,000 potential* tax deduction

In the second scenario, the charity receives more, you get a higher tax deduction, and nobody pays any capital gains taxes. It’s pretty powerful stuff!

*Don’t forget about the standard vs itemized deduction topic covered in part 1! 

Donor Advised Funds

If you’ve stuck with me this far, you’ll see how adding a Donor-Advised Fund (DAF) to your strategy can be a game changer, especially when you apply some of the concepts we’ve previously discussed.

What’s a Donor Advised Fund?

Donor

This is you, the person contributing.

DAF Sponsor

An organization that manages and administers the DAF account.

Grant Request

The Donor requests the DAF Sponsor to release funds to a particular charity.

The technical definition of a Donor Advised Fund (DAF) is a 501c3 organization that administers an investment account in the Donor’s name. A Donor makes an irrevocable donation to this account, receiving a tax deduction for that year. Contributions are usually stocks, bonds, mutual funds, cash, or other investments held in a separate account controlled by a DAF Sponsor (like Vanguard, Schwab, Fidelity, & American Endowment Foundation). The donor gets a tax deduction for the year the DAF account receives the funds. The funds can continue to stay invested, and the Donor can make Grant Requests for that year or future years. It’s important to understand that there’s no tax deduction in the year of the Grant Request since the deduction already happened when the funds were put into the account.

Why use a DAF?

I’d summarize it in one word: Control

A DAF allows you to control the year you take charitable tax deductions to coincide with the years you have a higher tax liability and need the deductions the most. Maybe it’s from a large bonus at work, selling a business, or some other sizeable taxable event. 

It also allows you to control what charity you give to and when the charity receives the donation. One knock against Bunching is you might go 3-5 years without giving to a charity. Often, people have a deep connection with the charitable organizations they choose, so having a multi-year gap between donations just doesn’t sit right with them. A DAF is a great solution to this problem.

You also retain control of how the funds are invested until they’re distributed to the charity. The growth of the investments isn’t taxable and can be distributed to charities in the future. 

Another added benefit is that the DAF can accept highly appreciated asset contributions. The rules work the same as those outlined earlier in this article. 

Now let’s walk through an example that shows how this all works to your advantage:
 

Meet John & Jane Smith

John and Jane Smith are charitably inclined and like to give to several charities each year. Over the years, they’ve added and removed charities from their list. Typically, they give about $20,000 a year to these charities. 

Jane is a business owner who sold her business this year for a price she never imagined she’d get. They now plan on retiring and want to start checking off their bucket list and spending more time with their kids and grandkids. 

The Problem

The bad news is they now have a hefty tax liability on the sale of the business. Their tax professional tells them it’s a $500,000 capital gain on which they’ll owe $100,000 in taxes. Initially, the tax professional recommends a one-time contribution to their favorite charity of $200,000 as a bunching strategy. John & Jane are uncomfortable giving that much to a charity all in the same year. They feel like it’s too much and prefer the idea of giving to charities on a regular basis like they have in the past.

The Solution
  • Their tax professional and financial advisor consult on their plan and recommend using a DAF to bunch their charitable donations into the year of the business sale. 
  • They identify $200,000 of highly appreciated stock in John & Jane’s non-retirement investment account to fund their DAF. The stock has $80,000 of unrealized capital gains. 
  • They contribute $200,000 and get the full deduction. This saves them $40,000 in taxes and avoids triggering the $80,000 in unrealized capital gains in their stock.
  • For the next 10 years, Jane and John continue to give $20,000 each year to the charities of their choice and on their terms. An added bonus is that their DAF account grew by another $40,000 during that time, and they were able to extend their $20,000 giving for two more years.

Donor Advised Funds can be a great addition to anyone’s charitable giving strategy. It’s a relatively simple and cost-effective way to compound the benefits of charitable giving for you and the charities you support. Stay tuned for part 3, where we’ll dive into even more charitable giving strategies. As always, if you’re considering a Donor-Advised Fund or want more information, please schedule a conversation with a North Point Advisor to see how it could fit into your financial plan. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  Hypothetical examples are not representative of any specific situation. Your results will vary.

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Taylor Ewer

Staff Accountant

Taylor is a Staff Accountant at North Point Advisor Group. She holds a BBA in Accounting from the University of Minnesota – Crookston and has 10+ years of experience in the accounting world. Experience ranging from Accounts Payable and Receivable, Bookkeeping, Payroll, Fixed Assets and Inventory Management. 

Outside of her professional role, Taylor is married with two daughters. In their spare time they like to go outdoors and spend time with family. They enjoy hiking, occasional camping, hunting/fishing and 4-wheeling.

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Michayla Thielen

Office Manager

Michayla is the Office Manager for our Minnesota office. She holds a BBA in Finance from the University of Wisconsin-Eau Claire and has previous experience in trading and operations within the wealth management industry. She collaborates with both the Operations and Business Development teams, helping North Point to better connect with clients and refine our services.

Outside of her professional role, Michayla enjoys dancing, baking, and traveling. 

Michayla hopes to use her diverse experience and attention to detail to ensure that our clients receive exceptional service.

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Sarah Johnson

Financial Planner

As a Financial Advisor here at North Point, Sarah combines her extensive experience with a personal touch to help clients navigate the complexities of securing their financial future. She believes that a well-crafted plan not only reduces stress, but also allows clients to fully enjoy the process of achieving their goals. Committed to understanding each client’s unique aspirations, Sarah works closely with clients to develop strategies that promote financial peace of mind. Her dedication to empowering others through thoughtful financial planning has established her as a trusted partner for long-term success. 

Sarah holds a bachelor’s degree from the College of Saint Benedict and a master’s degree from the University of Wisconsin-Stout. As a CFP® professional and Series 65 holder, she demonstrates her dedication to providing skilled guidance every step of the way.

Sarah lives in Mahtomedi with her husband and three children.  In her free time, between shuffling kids to their sports, she enjoys spending time outdoors with her family, camping in the summer, and skiing in the winter.

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Jeffrey Kolodjski

AIF®
Financial Advisor

As a Senior Advisor, Jeff works with a specific emphasis in the areas of retirement income planning, wealth transfer, and overall client portfolio management. He also helps with group benefits, including group insurance planning and qualified deferred compensation plans.

Jeff holds a Bachelor of Science Degree from Iowa State University and FINRA securities registrations through LPL Financial that include the Series 6, 7, and 63. In Jeff’s free time, he enjoys boating, biking, snowshoeing and neighborhood bonfires with friends and family. Jeff is married and is active in his local community.

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David Hopkins

CFP®, AIF®, RICP®, CEPA®
Managing Partner

David is one of our firm’s Managing Partners and a Financial Advisor. David is passionate about growing our firm by working with clients throughout important stages in their lives. From college planning, to building a family, to retirement and everything in between, David services clients to work towards their goals.

David received his bachelor’s degree from the University of Wisconsin-Eau Claire. He also studied at The American College, where David earned his RICP® designation and completed his CFP® coursework. David is married and has two children. In his free time, David is a competitive golfer who enjoys the outdoors and a wide variety of sports.

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Steven Hoffman

CFA®
Head of Investment Strategy

Steve has over 30 years of experience managing money for financial institutions, non-profit organizations, retirement plans and individuals, and has earned the Chartered Financial Analyst (CFA) designation. The market’s unique blend of statistical and psychological influences sparked Steve’s passion from an early age. He combines this experience and passion with a heavy dose of integrity and listening to provide impactful experiences for clients.

Steve is most at home in nature, whether that is hiking, kayaking, boating, skiing, motorcycling or music festivals. Steve has two sons in their early 20’s and recently published a spirituality/self-help book entitled Clear Vessels-Live a Clear, Joyful and Guided Life.  

Steven Hoffman is solely an investment advisor  representative of Great Valley Advisor Group, and is not affiliated with LPL Financial.  Any opinions or views expressed by Steven Hoffman are his own and are not those of LPL Financial.



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Amanda Bryant

Head of Operations

Amanda Bryant is the Director of Operations at North Point Advisor Group. Amanda joined our team in 2016. She works closely with our advisors and staff professionals in a partnership to maintain a strong culture of compliance to regulatory policies. With a focus on internal organizational systems, Amanda enjoys the opportunity to make it possible for the advisors to spend less time on back-office tasks and more time with clients.

Amanda lives in Forest Lake with her son and husband where they spend the summers outdoors hiking, kayaking and swimming and the winters skiing, sledding and sipping hot cocoa.

Focus
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• Operational strategy and workflow integration
• Compliance development and implementation

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Heidi Steffen

Office Manager

Heidi has a BS in Business Management from Cardinal Stritch University. Heidi is also licensed in life and health insurance. Heidi Steffen is the Administrative Manager and joined our team in 2021. She works closely with the Client Services team ensuring the North Point Advisor Group client services standard of excellence is met. As a member of the Operations team, Heidi works to assist in maintaining a strong culture of compliance, implementing company policies and procedures, and elevating company culture and morale

Heidi is married to her husband, Luke. In her free time, she enjoys spoiling her nieces and nephews, bow hunting and yoga.

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Mack Short

CPA
Tax Manager

Mack has a bachelor’s degree in accounting and finance from Saint John’s University, and holds a Certified Public Accountant (CPA) license in Minnesota. Mack’s experience includes 6+ years in the accounting world, handling tasks including bookkeeping, payroll, tax returns, financial compilations, and financial audits.

In his free time, he enjoys coaching football and wrestling, golfing, and spending time with friends and family.

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Steve Sadecki

Staff Accountant

Steve holds a bachelor’s degree in accounting from Mankato State University. Steve’s experiences entail over 20 years’ experience handling accounting duties which include daily bookkeeping, payroll, benefits tracking, government filings, and preparation of financial statements.

Steve enjoys spending time fishing, hiking, golfing, and other outdoor activities in his free time.

Steve Sadecki and their Tax/accounting/CPA related services offered through North Point Accounting & Tax, DBA North Point Advisor Group. Steve Sadecki and North Point Accounting & Tax, a separate legal entity, are not affiliated with LPL Financial. Any opinions or views expressed by Steve Sadecki are his own and are not those of LPL Financial.

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Brenden Cullen

Paraplanner

Brenden attended the University of Wisconsin Eau Claire where he received two degrees in Accounting and Marketing. Upon graduation, he moved to the Twin Cities to pursue a career in public accounting for two years but found his way back to Wisconsin where he now lives with his wife in Altoona. He has spent his days preparing both corporate and individual tax returns, assisting with client bookkeeping, and preparing quarterly estimates. He is excited to join the North Point team as a Paraplanner.

In his free time, he enjoys spending as much time as he can outdoors. Fishing, Hunting and Golfing are some of his favorite activities. He also enjoys spending time with family up north on the lake. As the weather gets colder, he spends much of his Sunday afternoons keeping up with the NFL action as an avid football fan. 

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Paul Woita

CLU®
Financial Advisor

Paul works to both help our clients and team member’s meet their personal and professional goals.

Paul began his career in the financial services industry in 1979 after graduating from UW-Stevens Point with a degree in economics. His passion for education has continued throughout his career, most recently receiving the CLU® (Chartered Life Underwriter) designation, which further facilitates his dedication to life insurance and estate planning specialization. Paul has been married for over 40 years and has two daughters, and two grandchildren who he enjoys spending his free time with.

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Jeremiah Raine

Tax Manager

Jeremiah has a strong background in tax planning and tax preparation. He holds a master’s degree in Accounting and Financial Management, which has equipped him with the ability to navigate complex tax regulations. Jeremiah has consistently demonstrated a commitment to excellence and precision in all aspects of tax management. His meticulous approach ensures that clients experience accurate and efficient tax preparation.

Outside of his professional life, Jeremiah is an avid golfer, a passion he developed with his grandpa as a child. He is married to his wonderful wife Bridgett and has four children. The family shares a love for boating and can often be seen on Lake Altoona as soon as the ice melts.  

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David Guild

EA
Financial Advisor

David comes to us from Concord USA in the Corporate Finance Division. His duties ranged from tracking client projects and consultant data while ensuring accuracy, processing client invoicing and vendor payments to reviewing and processing documents, invoices and payments related to employee expenses. Before Concord, David was with Washington County and 3M as a Financial Analyst. With a Degree in Business Administration with a Finance Emphasis – David’s true passion lies in personal finance.

David is an avid outdoorsman who enjoys experiencing nature in any form possible. His favorites include fly fishing, camping, backcountry hiking, and recreational sports. As a former volunteer firefighter, David brings a strong desire to utilize his knowledge and skills to help others.

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Joel Spitzer

Paraplanner

Prior to North Point, Joel worked for five years in banking as a Teller/Universal Banker. While in school he also worked at Starbucks and interned as a Judicial Assistant for Eau Claire County. Joel recently graduated from University of Wisconsin Eau Claire with a degree in Finance and Political Science.

In his free time, Joel loves being outside and spending time with my friends. He enjoys hiking and is a “want-to-be runner.” He and his friends love trying new restaurants or recipes together.

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Abbey Glass

Paraplanner

Abbey is a Paraplanner at North Point Advisor Group. She has over 7 years of experience in the financial industry serving in a client services capacity, coordinating with both Advisors and clients to provide outstanding service and care. Abbey is licensed in both life and health insurance.

Outside of work, Abbey has a very active family with two boys who participate in year-round sports. She also loves to spend time traveling, being on the water, and finding new trails to take her puppy on.

Abbey hopes to use her experience and astute attention to client service to ensure our clients are always at the forefront of exceptional experiences.

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Mathias Beck

Paraplanner

Mathias has a BS in finance from the Carlson School of Management (UMN-Twin Cities). Before switching to finance, Mathias studied mechanical engineering and worked in the PCL Lab as an undergrad research assistant.

In his free time, Mathias enjoys golfing, lifting, and fishing. He is also an avid fan of basketball and coaches a youth team within his hometown district. On the weekends you may find him at a basketball tournament or up north enjoying the great outdoors.

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Matthew Olson

CFP®, ChFC®, RICP®
Financial Advisor

Matt comes to North Point after serving and guiding clients in making sound financial decisions over the last 19 years.  By educating and simplifying the complex world of financial planning, Matt aims to bring a sense of security and comfort to his clients, while helping them to look to the future with hope and optimism.  Matt holds his Certified Financial Planner ®, Chartered Financial Consultant ®, and Retirement Income Certified Professional ® designations.  He graduated from St. Olaf College in Northfield, MN while majoring in Economics.

Matt is married and has two children and a high energy Australian Shepherd.   He enjoys watching his kids do what they love and in his free time spends time outside mountain biking and enjoying all that Northern Wisconsin has to offer.

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Sheri Sorensen

RICP®
Financial Advisor

Sheri is an experienced Financial Advisor and enjoys bringing peace of mind to businesses and families through sound financial guidance focused on client goals and values. Sheri received her Bachelor of Science degree in Business from the University of WI-Stout and an Associate of Applied Science from Chippewa Valley Technical College. She also studied at the American College where Sheri earned her RICP® designation. Sheri holds her Series 6, 7, 63 & 66, life, accident, and health insurance licenses.

She is married and has 3 children. She lives on a family-owned beef farm and to re-charge, likes spending time in the outdoors, traveling, visiting national parks, hiking, spending time on a lake or beach and scrapbooking.

I believe the secret to a fulfilling life is to be grateful for all that you have and do something every day that makes you happy.

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Jason Kell

AIF®
Retirement Plans Director

Jason serves as Director of Retirement Plans for GVA Retirement Consultants and partners with corporate and non-profit executives to improve and manage all facets of their retirement plans. He has provided independent advice and fiduciary guidance to corporate and non-profit employers since 2004. His entire 23-year career has been exclusively focused on qualified and non-qualified retirement plans. 

He assists plan sponsors in fulfilling their fiduciary duties and improving retirement plan outcomes through a focus on liability control, plan committee and employee education, cost reduction, vendor management, and improvement of plan-related operations.

As an Accredited Investment Fiduciary®, he possesses an extensive knowledge of the investment monitoring and management process. He is committed to being a lifelong student of the industry and pursuing positive outcomes through rigorous monitoring and service delivery to his clients.

Jason received his B.A. from the University of Delaware and enjoys coaching youth sports and spending time with his family.

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Mike Dolezal

CFP®, CEPA®
Managing Partner

As both a Managing Partner and a Financial Advisor, Mike leads the team toward our long-term vision and works with a client base of business owners and high net worth individuals.

Mike has a BS in marketing from the University of Iowa and is a CFP® professional as well as Certified Exit Planning Advisor. Mike has his Series 6, 7, 63, and 24 licenses. In his free time, he enjoys hunting, fishing, golfing, and spending time at his family’s cabin. Mike is married with three daughters and is a proud board member for the Mahtomedi Area Education Foundation.

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