Under the new Tax Cuts and Jobs Act of 2017 there was one aspect of the tax code left mostly unaddressed, charitable donations. That didn’t prevent several other aspects of the Act from having meaningful ramifications on outlook for charitable giving as a whole throughout the country. While many people are wondering how their personal tax situation will change, charitable organizations have their own concerns. Most notably changing for taxpayers, the standard deduction increased to $12,000 for single filers and $24,000 for couples filing jointly. Furthermore, state and local tax deductions were limited to $10,000 and the deduction for mortgage interest was capped on mortgage amounts up to $750,000. These combined make a perfect storm for substantially less households itemizing. The Tax Policy Center estimates that the percentage of households that itemized will drop from 30% in 2017 to 10% in 2018. That’s more than 27 million households. Without itemizing taxpayers receive no marginal benefit for any additional charitable contribution. Lower marginal tax rates overall also lower incentives to give. Further compounding this problem the estate tax exemption also doubled, further reducing incentives to make charitable bequests by Will or other estate planning measures. Given all these factors, it’s understable why many charities are concerned about the effects the new law will have on their receipt of donations and ultimately funding their budgets to carry out their missions. The American Enterprise Institute estimates that charities will collect $16.3 to $17.2 billion less in donations this year as a result of tax law changes. Of course there’s no one way to make up for such a large number, but for the charitable minded individual there are still plenty of advantages strategies to donate to the causes that mean a lot to them. Qualified Charitable Distribution from an IRA One a strategy that existed previously and has sudden gained a great deal of appeal is the Qualified Charitable Distribution (QCD). At age 70 ½ individuals begin being subject to Required Minimum Distributions from any IRA accounts. These distributions are generally taxed as ordinary income to the extent it is tax-exempt contributions or gains. As an alternative, these individuals can request that all or a portion of their distribution be delivered directly to a qualified charity as a QCD. As opposed to to taking the money out yourself, being subject to tax on that amount, and then giving the money to charity, a QCD forgoes generating the taxable income to you. This is very similar to receiving a deduction for the donation, but doesn’t require the taxpayer to itemize.. As a further benefit, this amount counts towards fulfilling the annual Required Minimum Distribution. The one limitation on this strategy is the amount you can donate is capped at $100,000 per year. Of the QCD amount also lowers the amount of your Adjusted Gross Income (AGI) which may be used in limitations for other deductions, including your other charitable contributions. Doubling Up If your personal tax situation does not provide you a benefit to making your charitable deductions, you could consider making them double in any one calendar year. That’s not to say double the amount of your giving, although I’m sure your charities would appreciate that. Instead, you only need to alter the timing of the gifts to make them fall within the same calendar year. Take this example: A married couple with the $10,000 maximum state and local tax deduction, $3,000 of mortgage interest and $10,000 of charitable donations. In a normal year, this would create $23,000 of itemized deductions and the couple would instead opt to use the standard deduction of $24,000. However, if they organized with their charities to accelerate two years of gifting into one year they would have $33,000 of itemized deductions. This produces an additional $9,000 tax deduction in that year! The second year, they used the standard deduction just as they would have otherwise. Donor Advised Funds If the timing doesn’t work for your charities or there is uncertainty about your future intentions, you can always make a gift to a Donor Advised Fund. This allows you to take the deduction in the present year, invest these funds for some time, and ultimately control the distribution in the future. Generally, this is allowed to be any 501(c)(3) qualified charity. Nearly every major brokerage has one of these Foundations making establishing an account, selecting investment options, and directing distributions is very easy and painless. Your investment horizon need not even be a long period Gift Appreciated Securities A tried and true practice that makes sense for nearly any charitable gift is donating appreciated securities instead of cash. By giving stocks, you maintain receiving the deduction but get the added benefit of avoiding paying capital gains tax on the sale of the security. Any security gifted in this way needs to be a long-term holding, held greater than one year. Your designated charity will also need to have the established account to receive this gift, which most major charities do. Also, since you are giving something with a fluctuating market value and in a set amount of shares, it is likely that your actual gift value fluctuates slightly from your intent. A $5,000 gift is likely to actually be $4,950 or $5,050. A New Environment For the very charitable minded, there was one nice change. The limitation on deductions for cash gifts to charity was increased from 50% of AGI in 2017 to 60% in 2018. Amounts in excess of this can still be carried forward for up to 5 years. If you experience a situation where it makes sense to give a very large amount relative to your income, you can still find a way to do this. Although charitable giving has lost some of it’s straightforward benefits under the current tax regime, there are still plenty of strategies to employ that provide the individual a very real benefit. There’s never been a better time to speak with both your financial advisor and your preferred charities about how to best achieve your philanthropic desires. You can know that by being proactive, you are on the right side of the giving public.

Do you remember Bitcoin? Probably, but do you spend as much time thinking about it as you did earlier this year? I’m willing to bet not, and if that’s the case maybe now is a good time to reflect on the lessons learned. Maybe the biggest value Bitcoin has provided to date is the lessons it taught us in behavioral finance. Remember that neighbor who would recite for you daily the price trajectory of Bitcoin? Have you heard from him on the subject lately? This doesn’t mean that Bitcoin is not destined for a big increase in the future. Bitcoin’s market dominance is now back over 50% of the cryptocurrency market, which has resulted in even bigger declines in the alternative cryptocurrencies. If you were excited about its prospects when it was priced at $17,000, you likely should be much more so now at $7,000. However, given the recent experience, it’s not unlikely that Bitcoin suddenly feels inappropriate for your risk tolerance. If your appetite drops off significantly just because an investment pulls back, then chances are your initial decision making may have been influenced by some very common behavior biases. To name a few: Trend Chasing - In December and January when Bitcoin was topping out, maybe that also happened to coincide perfectly with when you were developing your view on it as an asset. If that was your reason for being a purchaser then, you likely made a well-disciplined investment decision. However, if your decision was based solely on the expectation that it would continue its recent performance, you were likely a victim to trend following. There’s a reason why the first disclaimer on any investment document you receive is “Past performance is not a guarantee of future results.” A great lead into this behavior can be a Hindsight Bias, believing that somehow the prior results were perfectly predictable. You think you should have anticipated these results at the time and participated in the stellar performance up to this point. You remember reading the word “Bitcoin” in an article in 2015, but never bought any. But certainly you won’t be that foolish again, right? Regret Aversion - Maybe you weren’t concerned with achieving the performance, but rather you were afraid of being the only one who didn’t participate. It seemed like everyone you knew was buying Bitcoins, and you couldn’t bear to be the only one who didn’t. You couldn’t watch the news at the gym or make small talk in the elevator without touching on the subject. Just imagine how awful the social interactions would be if you were left out. We all know there are plenty of reasons for social events to be awkward to begin with, but your investment decisions should never be one of them. Sunk Cost Fallacy - Do you know people that still hold their bitcoins? The key question is do they still do this because of their continued bullish outlook, or because they already have a big loss in the position. If it’s the latter, this behavior is not one that leads to making good investment decisions going forward. Smart investing involves having a steadfast procedure for decision making and regularly revisiting it. Virtually no long-term investor is going to make it a lifetime without their own “Bitcoin Experience.” Some will learn that such investments are well outside their risk tolerance. Others may even learn that they will have a profitable future by weathering highly volatile assets. But what is most important is that all investors are also learners. There is almost nothing more detrimental to your overall financial well-being that consistently succumbing to behavioral traps.

Volatility has reentered the stock market, and suddenly our old friend is interesting again. Everybody forgot about last month’s sweetheart. This is all too often the case, with the valuable lesson being ignored in lieu of the latest hysteria. Meanwhile, I’ve been waiting for the above chart to finally write down my thoughts on Bitcoin. I (like every financial advisor) have been wrangled into a discussion of the subject countless times with clients, family, friends, acquaintances, cab drivers, et al. over the past few months. This is not an “I told you so” about the price coming down, because I didn’t know that. Rather this my opportunity to finally illustrate the point I’ve been making all along, any investment decision begins and ends with risk tolerance. The fact of the matter is, there are very few people (myself also excluded) who have the tolerance for the experience listed above. How many people who purchase Bitcoin in December are feeling sick to their stomach now? I’m not saying that over a longer time horizon it may not still perform well, but to experience that day when it comes you will need to be there. I don’t think as many people are signing up for that right now. This is the very message I echo over and over to clients when the guy they play golf with has a hot stock tip or their grandaughter’s classmate’s barber’s twin brother has a new startup for them to invest in. These investments are way, way outside the scope of most risk tolerances. Because to succeed in them, you have to be able to suffer the period like the year to date and still be willing to not just hold on but add your hard earned dollars to such strategies. Without this commitment, you’re doomed to failure. This doesn't just pertain to cryptocurrencies. There will always be a million reasons why the next hot investment you hear about is “nothing like Bitcoin”, but the reality is there is nothing proving that its volatility will be any different. I often get asked to review these ideas, and when I do I suspect people think I give a canned response shooting them down. The reality is, one of the first steps to a successful client relationship is a proper understanding of risk tolerance. Once that work has been done, it doesn't take long to identify what investments are in and outside of it.