facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

Retired Military Finances 201: Should You Make "Big" Charitable Contributions?

Taxes

I recently was going through some continuing education on the "new" Coronavirus Stimulus Act and the instructor was talking about how even though the law allows you to contribute and deduct up to 100% of your Adjusted Gross Income (AGI) to qualified charities. In essence reducing your taxable and tax bill to $0. Good deal, right? The instructor said no and here is why. Our tax system is progressive. In other words, we have tax brackets and the higher the income the higher percentage you pay in taxes. So, if you contribute 100% of your AGI some of the contribution will reduce your taxes by your current tax bracket. The remainder will reduce you tax bill a lower percentage. Here is an example. Let's assume you're married filing jointly and your AGI is $418,850. You'll get the following "bang for your buck".

Income Range/Total Dollars
Total Savings/Percent
$329,850 - $418,850/$89,000
$32,930/32%
$172,750 - $329,850/$157,100
$27,620/24%
$81,050 - $172,750/$91,701
$20,174/22%
$19,500 - $81,050/$61,550
$7,386/12%
$0 - $19,500/$19,500
$1,950/10%


If you compare the first two lines, on line two you'll notice you contribute almost twice as much but get a 16% smaller deduction.

Now, most of us can't actually contribute 100% of our income to charity. But a lot of retired Senior Military Officers and NCOs are in a pretty high tax bracket. So here are some thoughts.

  • If you're considering making a big contribution to a Donor Advised Fund (DAF) a lot before you retire, retire and continue to contribute after your ultimate retirement, then you only want to contribute enough to the top of the tax bracket you anticipate in retirement, maximum
  • If you just want to make a big contribution, but you're not sure when you will retire and what your tax rate will look like, then I would only contribute enough to go down the bottom of your current tax bracket

I don't think most of us make charitable contributions to get the tax deduction. But that doesn't mean you can't maximize the tax benefit of the contribution.

Military Finances are Different

Military finances are as different from civilian finances as a military career is from a civilian career. We think you should work with a financial advisor/planner that works with military members and retirees each and every day. Give us a call or set up a free initial consultation.


If you found this article useful, you might like the following blog posts:

Retired Military Finances 201: 5 Financial Challenges High Earners Could Face During a Biden Administration


Retired Military Finances 101: Do Annuities Ever Make Sense?


Retired Military Finances 301: Just When You Thought The Tax Code Couldn't Get More Complicated



Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.