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Welcome to the first edition of the Providers Wealth newsletter. It has been a busy time for us as we have also just launched our firm.
I started Providers Wealth to give targeted financial planning and investment guidance to professionals across industries, including small business and practice owners, employees, and those who are at or nearing retirement. With career experience in the healthcare sector, my goal is to be a trusted independent financial planning resource for the therapeutic healthcare sector, for speech pathologists, physical and occupational therapists. Most large traditional asset managers who operate under the Asset Under Management (AUM) model try to specialize in working primarily with surgeons, cardiologists, urologists, and other attending physicians. The therapeutic sector gets much less attention from large financial institutions. Based on my experience, working with employees and practice owners in the therapeutic fields, they have similar financial planning, tax planning, and investing needs.
Each quarter 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
“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 Scenario
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.
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.