CHARITABLE DISTRIBUTIONS ON SOUND RETIREMENT PLANNING PODCAST

Jason: Yes. We were looking at the numbers and one of the idea that we came up with was the qualified charitable distributions, because they’re over 70 and a half, they can give money directly from their IRA to the charitable organizations and help reduce their income that way. So, it’s a way for them to give a little bit more strategically. Do you think the qualified charitable distributions are going to become more valuable? Maybe help our listeners understand what qualified charitable distributions are as well.

Craig: Yes. It’s basically going from the IRA right to the charity and it doesn’t really hit your tax return on schedule A. So, right now, let’s just say a married couple, the standard deduction’s going to be about $20,000 in 2018. So, if you have a couple thousand dollars in real estate taxes and you have maybe $18,000 in charity, you hit the 20. But you’re really not getting any benefit of that $18,000 that you gave away and that 18 is actually showing up as income for you. If you take that 18 and you pass it directly through your IRA into the charity, it’s not going to show up as income and then you’re going to get the full benefit of the $20,000 itemized deduction, the $20,000 standard deduction.

Jason: I think it’s important too that people understand because I’m sure a lot of people out there are thinking, “Oh, great. That will be a great strategy.” But you do have to be 70 and a half. You have to be eligible for the required minimum distribution, right?

Craig: Anything we discuss, you should always go back and speak with your current CPA on the right way to do because if I leave out one little thing, that one little thing my wind up costing you money and you don’t want that to happen.

Jason: Yeah, great point. Craig, I want to keep asking you about taxes, but I’m curious about your story here. 17 years as a New York City police officer and now you’re a CPA. Tell me, I’m just curious to know a little bit about your background and your story and how you ended up going from a police officer to a CPA.

Craig: Yeah. My dad was a police officer. I was an economics major. Where I grew up, it was the thing you did. You took the test. It was civil service. Everybody was pretty much, in one form or another, civil service. I took the test my third year, I got called, I said, “Jeez, if I can make 50 grand by the time I retire, I’ll be set.” Young and stupid. So, I joined the police department. I did about 17 years. I retired as a lieutenant. I went into accounting when I left. I started out with an international firm doing a lot of international work. Then eventually, I went out on my own.

 So, I find it very exciting when I sit down with a client and we save them money. It’s probably as exciting, if not more, than chasing a perp through the streets of New York City. So, it’s very different but it’s a lot of the same skills. You need to communicate with people. As a cop, I had to communicate with people in the corporate titans in Midtown to the people maybe that were at the lower end of the poverty level. So, you learn to speak with people and get your message heard. I think as a CPA, it comes in really handy.

Jason: There are not a lot of CPAs that have that quality. You guys tend to be number crunchers and not always necessarily the greatest communicators. So, that’s an interesting set of skills that you have there to be able to cross over that divide.

Craig: Fortunately, the bar is set very low. But I do have a pocket protector.

Jason: You definitely need one of those in your profession, for sure. For all my CPA friends around town here, they’re going to be giving me a hard time. Craig, as we look out, this tax reform that took place, it’s scheduled to sunset in 10 years. So, some people say that that creates a really unique opportunity for the next 10 years to be thinking strategically about moving money out of retirement accounts, IRAs, 401ks, 43Bs, TSPs and over to Roth accounts. What are your thoughts on that?

Craig: I think people should always be planning to see what they can do now that’s going to have a long-term positive effect for them. So, it’s going to sunset, 10 years sounds like a long time. But 10 from now will roll around really quick. So, I think planning is important and when I say planning, it’s not sitting with your CPA and saying, “Okay. What payment do we need to make every quarter?” That’s not planning.

 Planning is seeing what can we do a little bit differently to really maximize what the code allows us to do? There’s nothing illegal about it. There was a Supreme Court justice that has a comment, something like there’s nothing illegal about planning to pay less taxes. If you think of Donald Trump, you think of Bill Gates, Warren Buffet, they all have teams that plan for them.

Jason: I’m always a little bit paranoid when it comes to the IRS. I think a healthy level of paranoia just to make sure, when possible, I like to deal in black and white with the IRS. I don’t like to get into any gray area. What are your thoughts? How can people make sure they’re not getting into something where they think is going to be really tax advantageous to them today only to have it come back and bite them in the future? Have you ever run into a situation where people have been in that situation? They thought they were doing good tax planning only to come back with penalties and big expenses down the road.

Craig: There were people that got involved in these partnerships years ago or offshore accounts that wound up getting hit pretty hard. But when we do a tax plan for someone, we actually show them the code and in the plan, we put the code where it actually says you can do what we say you can do. So, I don’t believe in gray areas either. It’s black and white. Take advantage of what the code allows you to do. Document what you’re doing and you’ll be okay.

Jason: I like that. So, when you’re putting together a plan, you’re actually providing them with a written plan that includes the code that says this is how we can do what we’re trying to accomplish.

Craig: Correct.

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