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For many affluent individuals, occasional gifts to a favorite charity may satisfy their charitable inclinations. The added incentive of an often substantial tax deduction, coupled with various estate planning benefits, is sometimes the driving force behind such charitable gifts. However, for some individuals, philanthropy is a far more serious endeavor, often involving a succession of substantial gifts of at least $5 to $10 million that may necessitate the need for control and general oversight. In such situations, a private foundation can be an ideal mechanism for managing a large, continuous charitable giving program.
Test your knowledge with this short quiz.
1) True or False. The charitable deduction for contributions will be limited depending on the type of charitable organization that is ultimately receiving the gift from the private foundation and the type of gift being made.
2) True or False. There are generally four types of private foundations: nonoperating; operating; company-sponsored; and supplementary.
3) True or False. The three ways a private foundation can be structured are: a nonprofit corporation; a trust; and an unincorporated association.
In its simplest form, a private foundation is a charitable, grant-making organization that is privately funded and controlled. When properly arranged and operated, a private foundation is an income tax-exempt entity, and tax deductions are permitted for individuals (donors) who donate to them.
Contributions to a private foundation are deductible for gift and estate tax purposes. The income tax deduction of gifts to a private foundation is a bit more complex. Generally, the deduction is based on the fair market value (FMV) of the gift (at the time of the gift) and is limited by the donor’s adjusted gross income (AGI). The charitable deduction will also be limited (to 20%, 30%, or 50%) depending on the type of charitable organization that is ultimately receiving the gift from the private foundation and the type of gift being made. Gifts that are not cash or publicly-traded securities, and that are valued at more than $5,000, require adherence to additional rules in order to ensure deductibility.
In addition to the advantages of a tax deduction (which is generally not exclusive to private foundations), private foundations may also offer an array of other benefits. Because a private foundation is typically established to manage a long-term charitable gifting program, it may, in turn, highlight the philanthropic presence and identity of the donor within the community and/or a particular charitable cause. It can also serve to create a family charitable legacy while, at the same time, protecting individual family members from the pressures of other charitable appeals. Finally, a private foundation can serve as an appropriate mechanism for controlling distributions to a charity(ies), as well as determining which charities the foundation will benefit.
When a private foundation is established, there are two issues that need to be addressed. First, what type of private foundation should the donor establish? And second, how should the private foundation be structured? There are generally three types of private foundations:
Each type of foundation has specific characteristics that make it appropriate for a particular situation. There are also strict requirements and guidelines that must be followed for each type of foundation.
The most common type of foundation is nonoperating. Essentially, a donor, or group of donors, makes contributions to the foundation, which, in turn, makes grants to a charity(ies). In this case, the donor has no direct participation in any charitable work. There are several variations of this type of foundation.
On the other hand, in an operating foundation, the foundation may have direct involvement in charitable causes (e.g., an inner city youth center), while retaining the tax benefits of a “private” foundation (although, in some respects, operating similarly to a “public” charity). To qualify as an operating foundation, it must also meet several requirements and tests.
In addition, a company-sponsored foundation can be used when the majority of contributions are from a for-profit corporate donor. Generally, this type of foundation operates similar to a nonoperating foundation. It is usually managed by corporate officers and has the added benefit of allowing some contributions to accumulate over time. This can help CGPVTFN1-X
the foundation make continual grants when corporate profits are low (a time when, ordinarily, contributions would be otherwise forgone).
After careful thought is given to the type of foundation to be established, the foundation’s structure should be taken into consideration. There are three ways in which a foundation can be structured: 1) as a nonprofit corporation; 2) a trust; or 3) an unincorporated association.
There are a number of factors to be weighed when deciding on which structure is best. Generally, if the donor intends to keep the foundation in existence permanently, a nonprofit corporation or trust may be a better choice. Additional considerations include: state and local laws governing private foundations; the type of foundation; the type of donor; assessing the need or desire to make future changes or delegate responsibilities; and personal liability issues.
Creating and maintaining a private foundation is much more involved than the use of more traditional charitable giving mechanisms (e.g., charitable remainder trusts (CRTs)). Therefore, legal and accounting professionals who have experience with private foundations must play a significant role in such an endeavor. In addition, due to the added complexity and need for highly specialized legal and tax expertise, the expenses for design, set-up, management, and grant administration in a private foundation will generally be substantial. Typically, a private foundation is only viable for individuals who intend on making periodic gifts in excess of $5 million.
Certainly, the private foundation allows today’s philanthropist the opportunity to manage substantial charitable gifts, as well as the ability to actually become involved in charitable work, if he or she so chooses. It also affords the donor the opportunity to be recognized for charitable giving, while solidifying his or her philanthropic legacy. This article serves as a general overview of a very complex planning area. Like all advanced planning issues, appropriate counsel should be sought in order to meet the goals and objectives of all involved parties.
Quiz Answers: 1) True; 2) False; and 3) True
Giving away some of your money is a great way to support the people and organizations you love. But there are smart ways to do it, minimizing your taxes and avoiding pitfalls along the way.
Once you have provided for your own retirement and met your personal expenses, think about benefiting others – whether it's your parents, children, grandchildren, friends, neighbors, church, synagogue, mosque, school or service organization. Your money is usually happily received, and you get a warm feeling from being a benefactor.
Consider some of the great givers.
You may not have the resources of a Rockefeller, Carnegie or Gates. But here are some prudent ideas for what to do with your money:
1. Give $15,000 per year to family, friends and other people you love. You may make an unlimited number of gifts, up to $15,000 each, of cash or other property each year, completely tax-free. If you left the same gifts at your death and your assets were subject to the estate tax, the recipients would see their gifts shrink by around 50%.
2. Open a joint account with those to whom you wish to give your money. Retain the checkbook, debit cards and other access points to retain as much control as possible. The account can avoid probate when you die. You can also list the beneficiary’s name first on the account, and this person will pay the taxes on any earnings from it.
There are disadvantages however, and these include:
3. Utilize charitable giving. This type of giving may provide current tax savings and minimize or avoid estate taxes. The money you donate is an investment in your community, the nation and the world.
Of course, it's wise to be cautious when donating. Research the organizations to which you wish to donate, and be sure that your money will be used in the way that you desire.
These steps will increase the probability that your donation dollars will benefit the people and organizations you want to help.
Trust, but verify. Be cautious of charities that spring up overnight in connection with current events or natural disasters. They may make a compelling case for your money, but they most likely don't have the infrastructure to get your donations to the affected areas or people.
Call the charity. Ask if the organization is aware of a solicitation you received and has approved it. If not, the solicitation may be a scam, mounted in the charity’s name.
Check with local recipients. If giving to local organizations is important to you, call the organization to verify they will benefit from your generosity.
Verify the contribution is tax deductible. Your contribution may not be deductible. If a tax deduction is important to you, ask for a receipt showing the amount of your contribution and stating that it is tax deductible.
Trust your instincts. And check their records if you have any concern about contributing. Callers may try to trick you by thanking you for a pledge you didn't make. If you don't remember making the donation or don't have a record of your pledge, resist the pressure to give.
Ignore high-pressure sales. Legitimate fundraisers generally don't push you to give on the spot.
Be wary of charities offering to send a courier or overnight delivery service to collect your donation immediately.
Consider the costs. When buying merchandise or tickets for special events, or when receiving free goods in exchange for giving, remember that these items cost money and generally are paid for out of your contribution. Although this can be an effective fundraising tool, less money may be available for the charity.
Be wary of promises of sweepstakes winnings in exchange for a contribution. Under U.S. law, you don't have to donate to be eligible to win a sweepstakes.
Do not send or give cash. Cash can be lost or stolen. For security and tax record purposes, it's best to pay by credit card or check -- made payable to the charity, not the solicitor.
Talk to your financial advisor. Your advisor is one of your best sounding boards and safeguards as you consider your charitable contributions.
Read that last one again.
Cedarwood Elementary School is able to have special events throughout the year because of a community fundraiser. The Cedarwood Parent Teacher Club (PTC) hosts a golf tournament with several levels of sponsorship. Strong Valley came alongside and went above and beyond the top level and donated 165 custom designed hats, each with the Cedarwood Elementary logo. All golfers were given a hat for their participation. A large amount of the hats were given to the PTC to sell at the school site, raising additional funds as well as school spirit!
The latest mess out of Washington is the fight to increase the federal debt ceiling. If this isn’t resolved, some fear catastrophe for the markets. Relax. Stocks may dip at first, but a market debacle won’t happen.
The debt ceiling fiasco will come and go, market volatility will likely increase and we have to manage our emotions and follow our investment discipline. There will always be drama in D.C. or unexpected announcements on Wall Street.
Long-term financial success dictates that we learn to manage headline generated waves in the market and recognize which ones truly matter and which are just ripples under our boat. Remember, some ripples even offer potential opportunities.
The politicians in D.C. seem to generate drama regarding just about everything these days. While many of the laws that state legislatures and Congress pass are in fact important, let’s take a closer look at the debt ceiling, which is a special situation.
For the past few months, discussions of the debt ceiling have slowly crowded out other stories on the newswires. That is a serious issue, and we certainly have opinions about it, but this article is devoted to helping you understand the market more than politics.
First things first, the debt ceiling does not give Congress the ability to spend more money. It does not hand over a blank check for them to do whatever they please.
So, if the debt ceiling does not allow Congress to spend more money, then what does it do? In the simplest terms, it approves the check to be written to pay for the spending that lawmakers already approved.
Imagine if you receive a credit card with a limit of $5,000, and then charge $5,000 on it. When the bill comes in the mail, you decide if you’ll pay it off or not. That’s essentially what Congress is doing, determining: whether they will pay the bill to cover the spending that the House, Senate and president already signed off on.
Seems fairly simple doesn’t it? Well, like most things that happen in Washington, both parties attempt to latch special spending items to bills that raise the debt ceiling. The important discussion of how much the U.S. government spends should ideally occur when voting on the actual budget. Without an agreement on this question, we could see a government shutdown.
Here is a very important thing to remember: if the debt ceiling is not raised and the government does shut down, it wouldn’t be the first time. In fact, it wouldn’t even be the twentieth time.
Since 1976 the government has been shut down 22 times, the last being between December 22, 2018 until January 25, 2019 (35 days). If this happens, then yes, the stock market will likely react negatively.
But we will survive and there will be a light at the end of the tunnel, the question is how long it takes to reach there.
When business is booming, many business owners don’t take the time to find out if their organization is running at maximum efficiency. Wasteful practices may abound, but are seldom addressed in the rush to get the product out or job done. Yet, when business slows, the time is there to take stock of business operations, formulate new strategies, and find innovative resources to help improve the efficiency and economy of your business.
Here are some issues to consider when planning to improve your company’s chances of success in the face of changing economic times:
This may seem like an obvious question, but formulating the right solutions without impairing your operations is seldom easy. Look for large and small ways to economize, without changing vital areas. For example, it may be possible to reduce the number of vehicles used or to conserve energy by turning off equipment when not in use. Now may be a good time to revisit some of your agreements and possibly negotiate a temporary or long-term discount. Consider taking advantage of bargains by buying in bulk or locking in prices for the future.
The marketing approaches your firm used in boom times may be less effective under tighter conditions. Clients may be more cautious about commissioning
projects, and they may want greater reassurances that they are getting quality and value for their money. While it may be a struggle to increase your marketing budget, well-targeted advertising campaigns can go a long way toward bringing in new business. Stepping up your networking efforts, both in person and online, is a low-cost option for attracting new customers and staying in touch with existing clients.
Lowering your prices may be a painful but necessary measure in a declining economy. Even if you don’t reduce prices across the board, you may offer discounts or incentives to attract and retain customers. If your customers agree to adjustments in the scope of the work or types of materials used, it may be possible to lower your prices while still maintaining profit margins.
Some companies start laying people off at the first signs of an economic slowdown. However, this can prove to be a dangerous overreaction, especially if your business ends up losing its most valuable employees. If you need to reduce payroll costs, consider viable options for doing so without letting good people go, such as offering flexible schedules, time off for training, or reduced hours for employees who want them. If necessary, consider trimming the size of retirement and health benefits, with assurances to employees that benefits will be restored as business improves.
When funds are tight, keeping track of cash flow becomes especially important. Check that your invoicing processes are operating efficiently, and that outstanding accounts are managed quickly. As obtaining credit becomes more difficult, meet with your accountant and your banking representative to discuss your credit lines, ways to improve your company’s credit score, and the options available in case of emergency.
Implementing new software and other information technologies, and integrating these programs into your business operations, is a complex and sometimes arduous process. A slower pace can provide your firm’s staff with the time they need to familiarize themselves with IT solutions that can help your business operate more efficiently. When better times return, your firm will continue to benefit from the productivity enhancements. Review your website, ensuring that the information is up-to-date and professionally presented. Investing time in enhancing your online presence will likely pay off during the downturn and as the economy improves.
Adapting to change is never easy. But, neither is running a business. Rather than focusing on the recession, focus on emerging leaner and more competitive than ever. After all, when the going gets tough, the tough get going.
In addition to providing excellent financial services, Strong Valley's own Founding Principal, Adam Tirapelle, was once a standout collegiate wrestler earning three All-American honors and an NCAA National Championship in 2001. Now he's an official Hall of Famer. Way to go Adam!
“Adam Tirapelle helped Illinois finish fifth at the 2001 NCAA Wrestling Championships by taking the individual title at 149 pounds. It was Illinois’s best placing nationally since 1946. Tirapelle earned All-America honors three times and was the 2000 Big Ten Champion at 149 pounds. He holds the school-record with 15 pins in 1999-2000, ranks second on Illinois single-season wins list with 39, second in career wins with 127, is third in career pins with 33 and sixth in all-time win percentage (.858). Tirapelle qualified for the NCAA Championships all four years at Illinois, finishing second in 2000 and third in 1999 in addition to his 2001 title. One of the great leaders for the Illini, he was a three-time team captain and two-time Most Valuable Wrestler. Tirapelle was the 2001 Illinois Dike Eddleman Male Athlete of the Year. He currently resides in Clovis, California.”
View on FightingIllini.com website. (link)
On December 7, 2001, a Gallup Poll ran the following headline:
“Americans Say Sept. 11 Will Be More Historically Significant Than Pearl Harbor.”
That December 7th day when Gallop ran that headline marked the 60th anniversary of the attack on Pearl Harbor. But it was also just a few months after the September 11th attacks in New York and Washington – when many Americans were comparing the events in 1941 to those that had just occurred.
Ask yourself: which event had a more significant effect on the United States? The attack on Pearl Harbor in December 1941 or the attacks on the World Trade Center and the Pentagon in September 2001?
According to Gallup, 72% say 9/11. And before someone asks about Americans 65 and older – those with memories of both Pearl Harbor and the war that followed – consider this: those 65 and older say 9/11 will have a greater impact on America too.
While there are chilling similarities between Pearl Harbor and 9/11, there are plenty of important differences. Differences that need to be discussed with an open mind and within historical context.
The reality is that while 9/11 might seem like yesterday to most, students in 2019’s high school senior class were not yet born on Sept. 11, 2001. To them 9/11 is history – just like Pearl Harbor.
Twenty years from now, history books might suggest that 9/11 touched our lives and our children’s lives far longer and with more impact than Pearl Harbor ever did. Maybe even longer than World War II.
The fact is that each generation gives different meaning to the same historical events based on whatever issues they are currently concerned about. So, never forget the words of Thomas Jefferson:
“I like the dreams of the future better than the history of the past.”
Hurricane Ida made landfall near Port Fourchon, Louisiana, on Sunday, August 29th as an extremely dangerous Category 4 hurricane packing winds of 150 mph, the National Hurricane Center said.
And for the residents of Louisiana, Ida was a somber reminder of the damage caused by Hurricane Katrina – because Ida made landfall on the 16th anniversary of Hurricane Katrina.
As if residents didn’t have enough to worry about, Ida was tied as the state's most powerful storm ever with Hurricane Laura from last year and the Last Island Hurricane of 1856 (Katrina made landfall as a Category 3 storm). And Katrina caused upwards of $150 billion in damage, earning it the title of the costliest hurricane of all time.
Whether you rent or own your home, you need insurance to help rebuild if a hurricane, a fire, or a tornado hits you.
But did you know that as a rule, standard homeowners’ and renters’ insurance does not cover flooding caused by extreme weather? And what happens if you need to replace your valuable coin collection after a hurricane if your house blows away?
You need flood insurance if you live in a designated flood zone. But flooding can also occur in inland areas and away from major rivers. Flood insurance is available for renters as well as homeowners, but a special policy is required as flood insurance – like earthquake insurance – is just not a part of standard homeowner's coverage.
If you think you need flood insurance, don’t wait for the arrival of a hurricane to buy a policy – there is a 30-day waiting period before the coverage takes effect.
Many policies don’t cover pricey jewelry, antiques, coins, collectible firearms and other exotic or expensive possessions. Or if they do, it is limited. In fact, some insurers even restrict what they pay to replace top-end computers, according to the National Association of Insurance Commissioners.
Generally, any coverage for these items is an aggregate amount less than a predetermined dollar limit, such as $1,000, for the total loss.
For example, let’s say you have an extensive coin collection worth $50,000. Your spouse has a watch worth $10,000.
Under a normal home policy, a hurricane, fire or tornado causing a total loss of coins and a watch means you may only receive up to $2,000 (assuming the aggregate coverage amount was $1,000 for each).
Your net loss: $58,000.
You could, however, prevent such a hit with an endorsement (aka a rider or in some cases a floater) to your home coverage, a sort of added policy within the main policy.
Essentially an endorsement specifically covers an article of personal property either excluded or not fully covered in the main policy. Also, a policy floater allows you to insure valuable items separately and for higher amounts than under a standard homeowner’s policy.
With such a rider – which comes at additional cost and is often higher in cities – your coverage includes much more, and you can choose your own deductible for the loss. Many endorsements also cover disappearance: if you lose the watch while cleaning the garage, for instance, the rider might cover the loss – which the home policy doesn’t.
Generally, endorsements are an inexpensive way to broaden coverage under an existing policy, though you must get valuables formally appraised to set coverage. Rates will vary according to such factors as the type and documented dollar value of the item covered and where you, the insured, live.
Call or comment below to arrange a time to talk about how we can protect you and your family.
Whether retirement is around the corner or decades away, there are more options than ever to help you plan for it. Let’s look at Individual Retirement Accounts (IRAs) and 401(k) plans, which offer tax benefits that can help you save for your future.
Traditional IRAs are one of the most popular retirement savings vehicles. In 2021, you can contribute up to $6,000 to your traditional IRA. (Note: the limit applies to the total of all IRAs that a person may hold in a given tax year).
If you are age 50 or older, you can make additional “catch-up” contributions of up to $1,000. Earnings have the potential for tax-deferred growth, and contributions may be tax deductible, depending on your income and participation in an employer-sponsored retirement plan.
Because IRAs are intended to help you save for retirement, rules govern when you can begin accessing funds. Distributions before the age of 59½ may be subject to a 10% Federal income tax penalty, in addition to the income tax that will be due. However, there are exceptions to the 10% penalty, such as withdrawals to pay for qualified higher education expenses or to fund up to $10,000 of your first home.
Roth IRAs operate differently from traditional IRAs. Contributions are not tax deductible, but earnings have the potential for tax-deferred growth and qualified distributions are tax free.
You are eligible to make a full contribution ($6,000 in 2021, or $7,000 for those age 50 and older) to a Roth IRA if your modified adjusted gross income (MAGI) does not exceed $139,000 for single filers or $206,000 for joint filers in 2021 (contributions phase out for those within certain income ranges too).
As with traditional IRAs, a 10% Federal income tax penalty may apply to distributions taken from your Roth IRA before the age of 59½, unless a qualified exception applies. Furthermore, before tax-free distributions can be received from a Roth IRA, the account must be five years old.
You also may convert an existing traditional IRA to a Roth IRA. The distribution from your traditional IRA will be taxed in the year of conversion, but you won’t be penalized for the early withdrawal, provided you keep the converted funds in the Roth IRA for at least five years.
The 401(k) is a retirement plan offered by thousands of employers to facilitate retirement savings for their employees. As a participating employee, you can contribute the lesser of $19,500 in 2021 or a percentage of salary as defined by the plan.
Those age 50 and older can contribute an additional $6,500. In some cases, your employer may match your contributions up to a certain percentage. This increases your principal at no cost to you.
Contributions to a 401(k) are pre-tax, which means you don’t pay taxes until you withdraw money from the plan. This may be attractive for those who expect to be in a lower tax bracket during retirement than during their working years. In addition, your contributions have the potential to grow on a tax-deferred basis. As with IRAs, nonqualified withdrawals from a 401(k) before the age of 59½ are subject to a 10% Federal income tax penalty, unless a qualified exception applies.
Some employers may also offer a Roth 401(k) option, which allows workers to make Roth IRA-type contributions to their 401(k) plan without the income restrictions and lower contribution limits that apply to Roth IRAs. The contribution limits are the same as for traditional 401(k)s, but salary deferrals to Roth 401(k)s are not tax deductible. Qualified distributions are tax free.
Under the Small Business Jobs Act of 2010, participants in 401(k) plans are now permitted to roll over funds into Roth accounts within their plans. Any eligible funds transferred from traditional to Roth 401(k) accounts are taxed in the year of conversion. It is also important to keep in mind that any employer matching contributions must be made to the traditional side of a 401(k) account, not a Roth.
These are just some of the retirement savings options available. Remember, early planning puts time on your side. Call me to arrange a time when we might discuss which options are best for you and your retirement goals.