October 2024 Edition 

Welcome to the first edition of the Providers Wealth monthly newsletter.  It has been a busy month for us as we have also just launched our firm.

I started Providers Wealth to give targeted guidance to the ancillary sectors of the healthcare providers world, business owners of private practices and their employees, and families. Most large traditional asset managers who operate under the Asset Under Management (AUM) model love to prospect primarily for surgeons, cardiologists, urologists, and other similar specialty fields. The ancillary sector gets much less attention from these larger asset managers. Based on my experience, working with practice owners in these ancillary specialty fields, they have a lot of the same financial, tax planning, and investing needs as do other specialty fields. The focus will be to primarily serve this segment of the market, their businesses, them as individuals, and their families.  

Each month I will provide a practical financial idea, tax planning tip, or cover an investing topic that could help you better manage your investments and or your business. Given that the tax season is just around the corner, and the giving season for making charitable donations is now occurring for many, this first topic seems appropriate.  

“Donor Advised Fund” (DAF) Charitable Giving Accounts

A DAF account is a charity account that you make donations to now and maintain the assets in the account to be granted out at a time of your choosing.  Any money in the account can be invested and the income or appreciation from those investments is tax free. All money in the account must remain in the account until it is donated.  

Strategic Planning Idea:  

“Stacking” or “Bunching” contributions is one type of charitable contribution strategy that you can utilize a DAF account for. Both words are used interchangeably here. This strategy typically works well for high-net-worth individuals and business owners, such as those in healthcare, where income can vary significantly year-to-year.

Here’s how the stacking strategy works in the context of DAFs and contribution strategies:

Real Client Story:

Charitably Inclined Married Couple: Rhonda and Mark (names altered for privacy), they give ~10k/year to their church and various one-off donations to Feed My Starving Children

Their Normal Yearly Earnings: ~$220k/year taxable income

Larger Earnings One Off Year: ~$220k/year plus an additional bonus of roughly 300k (~$520k for the year total)

They already save and invest ~25% of their normal $220k annual income. They do not need or want to spend this additional $300k+ bonus money.

Their Normal Annual Tax Claim: Standard Deduction

We strategized and decided to “bunch” 5 years’ worth of Charitable Donations together in one year. With the understanding that they will continue to donate the same amount they always do each year. Going forward they will just do it from their new charitable DAF account instead of their savings account. If someone typically gives $10,000 annually to charity but the standard deduction is $27,700 (for married filing jointly in 2023), they likely wouldn’t get any tax benefit from itemizing. Instead, Rhonda and Mark could “bunch” 5 years’ worth of contributions ($50,000+) into a DAF in one year. This enables them to itemize the charitable deduction that year alongside other non-charitable miscellaneous deductions. They then make donations from the DAF over time, while likely using the standard deduction in the following years. In addition to itemizing the charitable deduction in the year of the donation, they also get the longer-term tax benefit of the DAF account itself. The trade-off is that once the charitable contribution is made it becomes an irrevocable gift, so be sure on the amount you want to contribute.

RECAP

1. Bunching Contributions:

• Normally, donors may tithe regularly or give annually to their preferred charities, but the standard deduction could limit the tax benefits of those donations.
• With stacking, donors will contribute several years’ worth of donations into their DAF in a single tax year. This larger contribution allows them to itemize deductions for that year, potentially saving a lot in taxes.
• In subsequent years, instead of contributing directly to charities, they make grants from the DAF without adding new contributions to the fund, meaning the donor won’t need to itemize those future years.

2. Tax Timing and Deduction Maximization:

• Normally, donors may tithe regularly or give annually to their preferred charities, but the standard deduction could limit the tax benefits of those donations.
• With stacking, donors will contribute several years’ worth of donations into their DAF in a single tax year. This larger contribution allows them to itemize deductions for that year, potentially saving a lot in taxes.
• In subsequent years, instead of contributing directly to charities, they make grants from the DAF without adding new contributions to the fund, meaning the donor won’t need to itemize those future years.

3. Flexibility in Charitable Giving:

• After contributing to the DAF in the stacked year, the donor doesn’t need to rush the distribution to charities. They can recommend grants from the DAF over time, spreading their charitable impact while having already reaped the tax deduction.
• This approach also gives the donor time to carefully select charities or respond to changing charitable priorities over time.

4. Investment Growth:

• The funds in the DAF can potentially grow over time if they are invested within the DAF account, providing additional funds to donate. This adds another layer of benefit as the original stacked contribution can increase the total charitable output over time without any additional tax implications for the donor.

Disclaimer:
The information contained in this newsletter is for educational and informational purposes only and does not constitute financial, legal, or tax advice. You should consult with a qualified professional before making any financial decisions. The strategies and opinions presented may not be suitable for everyone and are subject to change based on individual circumstances. All information provided is used at your own risk, and Providers Wealth, LLC makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. Providers Wealth, LLC expressly disclaims any and all liability for actions taken or not taken based on the contents of this newsletter. Past performance is not indicative of future results. Investments involve risk, and there is no guarantee that any investment strategy will be successful. Registered Investment Advisor (RIA) services are provided by Providers Wealth, LLC, a registered investment adviser based in Phoenix, AZ.