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Monday Money Report

| July 20, 2020

We had another volatile week in the markets, finishing slightly ahead for the week.  Earnings season, when publicly traded companies report how much money they made or loss for the prior quarter, is just getting started and will impact the next couple of weeks.

Last week was also the tax filing deadline for federal and state taxes. And some of you may be wondering what the heck you can do to lower that bill for next year. A few ideas include adjusting your withholdings, or the amount of money taken out of your paycheck and sent on to the government. The IRS did release a new form to help you calculate what that should be.  It’s called a W4, and you can get one online, or email us and we’ll send you one.

Contributing to tax-advantaged accounts such as IRAs and 401(k)s is another tax-saving opportunity.  As is contributing to a Health Savings Account, or HSA, which is available if you have a High Deductible Health Plan.  The unused money in an HSA carries over each year.  Contributions are made pre-tax and any money that comes out for medical expenses comes out tax-free.

You can also donate to a non-profit.  If you itemize, that’s a direct deduction from your income.  And for 2020, the CARES Act does allow a deduction for up to $300 in donations even if you don’t itemize. Want to go bigger? If you are running around with Bill Gates or Jeff Bezos, you might want to set up a private foundation.  Or, for those of us with slightly more modest means, a Donor Advised Fund is a great alternative.

A Donor Advised Fund allows you to establish an investment account that you contribute to when you have the money.  You get a tax deduction in the year donations are made. Then, you direct the non-profit that runs the Donor Advised Fund to send money to the non-profit organization of your choice when you are ready to make gifts.  Compared to running a private foundation, with the financial reporting, administrative burden, board requirements, and so on, a Donor Advised Fund is easy and inexpensive.

Some families use them to build a fund over time so that they can make larger, more impactful gifts, later in life. They make annual gifts to increase the fund size.  All the investment growth inside the fund is tax-free, because it is already held by a non-profit organization. Many Donor Advised Funds will allow you to gift property, art, and appreciated stocks, too.  Giving appreciated stock, or stock that has a large capital gain, is a double win.  You avoid the taxable gain, and get a deduction for the full amount of the stock donated.

If you want to establish a family legacy of philanthropy, you can contribute funds regularly, showing your children how your family gives each year.  Then you can come together to decide on spending a portion of the fund.  Younger children can propose a cause that is meaningful to them individually, or to your family.  Middle school or high school students can use a site like Charity Navigator to evaluate potential recipients, teaching them to be wise donors and find organizations that are good stewards of your gifts.  As your family grows, this can be a great thing to do when everyone comes back for the holidays.  As your children mature they can begin contributing to the fund as well, and their children can help pick the recipients.

You can establish a Donor Advised Fund with your financial advisor, here with us at CovingtonAlsina, or through some community organizations like the Community Foundation of Anne Arundel County. Whichever way you go, ask about the fees, investment choices, and any restrictions on recipient organizations.

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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.