Rethinking Charitable Contributions

If you used to itemize your deductions, last year’s massive tax law changes may affect the optimal way for you to make charitable contributions. Three major modifications in the law are responsible for the changed situation:

(1) The 2018 standard deduction increased substantially. It’s $12,000 single/ $24,000 married, which is significantly higher than in 2017. For those over age 65, the standard deduction increases to $13,600/$26,600 (assuming both members of the couple are over 65).

(2) The deduction for state and local taxes is capped at $10,000, regardless of whether you are single or married (a clear marriage tax penalty in a bill that is otherwise very friendly to families, especially if you have children – go figure).

(3) The provision for Qualified Charitable Distributions (QCDs) was made “permanent” in the new law, meaning taxpayers no longer need to wait until December to find out if Congress will extend the provision.

The combination of (1) and (2) means the standard deduction will now apply to a significant number of individuals who itemized deductions in the past. Charities have their fingers crossed that these people will not reduce their contributions because they have “lost” the deduction for them. It also means that the group of people who benefit from “doubling up” contributions changes.

The “doubling up” strategy involves developing a contribution schedule that crosses two calendar years. If your itemized deductions are less than the new standard deduction but greater than 50% of it, you might benefit by moving all deductions you can from year 1 to year 2 (or vice versa). For example, let’s say you routinely make $10,000 in contributions each year and under the new law that means you will take the standard deduction. Instead, make no contributions in year 1, and on January 1 of year 2, donate the carryover $10,000. Then donate year 2’s $10,000 sometime before the end of the year. If the $20,000 donation is sufficient to allow you to itemize in year 2, then you’ve converted some nondeductible contributions into deductible ones and reduced your overall taxes.

Also effective is delaying optional medical expenses (in standard deduction years) or pushing them forward (in itemizing years). To a lesser extent, timing the payment of real estate taxes or state income taxes might also help.

What’s up with Qualified Charitable Distributions?

Making the QCDs permanent means anyone who must take the Required Minimum Distributions (RMDs) from an IRA and donates to 501(c)(3) organizations might benefit. Once you turn age 70-1/2, current rules on IRAs, 401(k)s and the like require you to take certain minimum annual levels of distributions or pay a huge tax penalty. As with any such distribution, RMDs are taxable to the extent they do not reflect a return of nondeductible contributions.

QCDs apply only to standard IRAs and allow you to DIRECTLY donate up to $100,000 per individual to qualified 501(c)(3) charities and exclude the donation, to the extent it was taxable, from income. What’s the benefit?

(1) If you take the standard deduction, this provision allows you to effectively deduct what would otherwise be nondeductible contributions. A clear win.

(2) Even if you do itemize, making a QCD reduces your adjusted gross income. That reduction may help you avoid the Medicare High-Income Surcharge, possibly reduce the proportion of Social Security benefits that are taxable, and reduce the limit before medical expenses can be deducted.

(3) Because you’ve reached the age requirement for RMDs, you were going to have to take money from your IRA anyway, and this might be the most efficient way to do it.

What are the rules for QCDs?

(1) You must have reached age 70-1/2 before the distribution is made.

(2) It must come from a regular or rollover IRA, not a SEP or Simple IRA in which employer contributions are still being made. They can’t be from a 401(k) or 403(b).

(3) The receiving organization must qualify as a 501(c)(3) organization (not all charitable organizations do, and private foundations and donor-advised funds are not eligible)

(4) The contribution must come directly from the IRA. If you cash out the IRA and make a contribution with those funds, it will not count. Many IRAs offer a check-writing privilege and that technique will work because the check is coming directly from the IRA. Otherwise, you’ll have to donate securities from the IRA.

(5) Had you not used this technique and instead deducted the contribution in the normal manner, it must have been entirely deductible (e.g. you can not receive any benefit from your deduction—so make sure to reject that coffee mug from NPR and turn down those tickets to the charity ball.)

QCD Implications

Since 401(k)s and 403(b)s do not qualify for QCDs, and if you make considerable charitable donations to 501(c)(3) organizations, you can consider rolling over the qualified plan into an IRA to take advantage of the QCDs.

Increasingly, states income taxes use different rules than Federal income tax law. Any analysis of your contribution strategy must include how any change affects your state income tax in addition to the federal effects.

If you are approaching 70-1/2, QCDs are one more thing to think about as you determine whether to take your initial RMD in the year you turn 70-1/2 or wait and take it by April 1 of the following year.

Warning

We’re talking taxes here, and these are my understandings of the rules. I’m not a lawyer or accountant, and I’m not providing any advice. You really must check with your own tax advisor before making any decisions (or make sure to do your homework).

Six Rules of Author Self-Promotion

Whether you are with a big five publisher or publishing a novel yourself, you must promote your book. I’ve learned six rules to do it right.

Rule One: It’s not all about YOU

Self-promotion should be about building relationships. As an author, your goal is to build long-term relationships with your readers. Naturally, your writing is what ultimately makes the difference, and you need to make it as compelling as possible. That does not mean you start building relationships once you have something about to be published. That would be all about you.

Relationships are two-way streets. If self-promotion is you force-feeding your promotions, you will not be effective for long.

Rule Two: Add Value to the Relationship

You have experiences and expertise that you can share with others to make their life [fill in your adjectives here.] Try to provide value within any promotion. Entertain, provide new insights into your writing, your work, your life—help others improve their writing, their work, their lives. Let people know what didn’t work and why so they can learn from your mistakes.

Help them along their paths without asking for a return favor. I will be forever grateful to Hank Phillipi Ryan and Steve Hamilton, two high-powered authors who took the time from their busy schedules to write blurbs for my books. Don’t you think I let people know about their helpfulness? (You bet. I just did, didn’t I?)

Rule Three: Be Yourself

I am a math guy; always was, always will be. I know that’s not everyone’s cup-o-tea, but it is mine. With my math background and ability to translate complicated concepts into English, I can help people understand the world in a different way. That’s my niche. And I write financial crime novels, so there is a practical tie-in.

Show your sense of humor. Some won’t get it—they never do, do they?—but those who are tuned to your sensibilities will form a stronger link with you.

Rule Four: Have Permission

How do you feel when a robocall interrupts your family dinner? For me, that’s a perfect reason to never buy the product, vote for the politician, or do whatever they had in mind for me to do. All because they did not have my permission to interrupt what I was doing.

I receive unsolicited author newsletters and email promotions all the time. The first time it happens, I chalk it up to inexperience. But when it keeps happening, I employ email junk filters to toss them into the spam pile that is deleted without delay. How likely am I to buy their books or retweet that their latest is on sale? You guessed it: not likely.

Make sure you have permission before sending newsletters. When someone like the ELF asks you to write a guest blog, follow their rules regarding content and promotion. It’s a courtesy to the blog’s owner, and its readers will be more apt to appreciate what you have to say.

Rule Five: If you don’t ask for assistance, you won’t get it.

If there is something you would like people to do, you need to make a direct, clear ask. I’d like you to buy my book, and maybe you would based on this blog. What I will ask you to do is to read the first four chapters of Empty Promises for free and decide for yourself if you enjoy my kind of writing. (If you prefer starting a series with the first book, Ant Farm’s first four chapters are here.)

Nothing works as well as a direct ask.

My order of preference is to ask in person. If that’s not possible, then by phone where two-way communication is still possible. Email or your favorite messenger app is a distant third because it is more distant. Of course, in a promotional situation like this, you need to incorporate your ask in a way you think makes sense.

Rule Six: Thank People When They Help You

Strangers, friends, and family do not owe authors their support. So when someone offers it, tell the individual or community that you appreciate the time and effort they took to help you out. This common courtesy goes a long way when people know you mean it.

That’s it: six rules that make self-promotion acceptable to my sensibilities. What’s been your experience?

A version of this blog appeared as part of the Empty Promises Virtual Book Tour (4/2/18 - 4/20/18)

A Sense of Place

Clifton Area of Cincinnati, OH

If you are going to be a successful liar, you need a great memory. Lies accumulate over the years, and it takes more and more effort to keep them straight. By the time I started writing the Seamus McCree novels, (Empty Promises is #5), my steel-trap mind was already suspect. I reasoned that if I wrote using settings I knew, it was one less thing I had to worry about remembering. Oh sure, I could have developed a detailed series bible with all the invented places and so forth, but that’s a lot of work—and for me, organization is more a wish than a reality. Since it’s easy to forget where the closets are, I housed characters in residences I used to inhabit.

For Ant Farm and Bad Policy, I gave Seamus my house in the Clifton neighborhood of Cincinnati (but moved it to another street). Uncle Mike, a continuing character, resides in the apartment complex in Waltham, MA where I lived in 1978.

Cabin Fever is set in the Upper Peninsula of Michigan where Seamus happens to have a camp located on the same lake where I have my home. For Empty Promises, I wanted to return to the U.P. and the story was willing. Our place—er Seamus’s place—is fifteen miles from the nearest place you can buy anything. Fourteen of those miles are gravel or dirt roads. Cabin Fever was set in the dead of winter and in that story weather and the gradual movement toward spring were their own character. Empty Promises occurs during summer, and although our place is not as isolated as in winter, it is still remote, which is an important ingredient in the story. And best of all, I don’t have to think about where the doors are or which side of the house has the screened porch.

I’ll be interested to hear in the comments how as readers y’all feel about using real locations for novels. Do you enjoy reading about real places, or would you prefer authors construct their own locations?

This blog was originally published as a guest post for part of the Empty Promises Virtual Book Tour.