Following my invitation, I sent three more emails to our family members in anticipation of the family meetings I hoped to hold during our Family Fun Week.

The first was simplest: I simply forwarded an email I had requested from our CPA in anticipation of year-end financial planning to maximize our giving.

Sarita and I have been trying to maximize our charitable contributions. As I have expressed it on several occasions, I would love to blow through the 50% of AGI barrier on charitable giving.

I have discovered that’s not so easy! And for at least two reasons.

First, when you have a good CPA, he or she will do everything possible to help you arrange your affairs to minimize taxes. And as ours did last year, a little strategic and creative planning can make a remarkable difference in what 50% of your income looks like!

In our case, since our primary source of income is an S-corporation, whose entire income is attributed, personally, to the shareholders, our CPA urged us to give directly from the corporation rather than after distribution to shareholders. We could thus spread our charitable contributions to all family members (since all family members are shareholders).

Since Sarita and I, at this point, “only” own two-thirds of the company, we could effectively increase our non-taxable giving by 50% (100% [full ownership] is 50% more than 66.6667% [two-thirds ownership]). Of course, we would be “forcing” all family members to contribute up to 50% of their AGI [Adjusted Gross Income] from the corporation by this strategy, but, in essence, we have been enforcing a minimal tithe. . . .

We were unable to give away 50% of the corporation’s net income before taxes last year! But the 40% or so we did give was way over Sarita’s and my AGI! So . . . while we weren’t able to break the 50% barrier; and while other family members gave–without negative attitudes, but with no personal volition, either; Sarita and I were able, effectively, to ensure that far more than 50% of our AGI was given.

The second reason I have found it difficult to give beyond the 50% barrier is, simply, that a company needs profits–retained profits–in order to survive and thrive. Put another way, a company needs cash! –As I am being reminded once more, income and cash are not the same thing. One can have tremendous income on the books, but no cash. (I thought I had a post on this topic, but I can’t find it. So I’ll have to write about it later.)

Despite the difficulties, Sarita and I are seeking to give as much as we can toward the 50% level. Cash is so tight right now, however, Sarita has been thinking we must have already given very close to 50% of our net profits before taxes [NPBT].

So I asked our CPA: “If we set 50% of NPBT as our giving goal for this year, how much do we yet have to give?”

When he got back to me, I was stunned: we still have . . . well, let me say . . . a lot to go. Not much more than we have promised or pledged. But far more than the cash we have in the bank!

Moreover–and this was the reason I wanted to forward the CPA’s email to our kids–if we push our corporate giving all the way to the 50% of NPBT level, it will have some practical implications for our kids.

So here is what I sent to the kids:

From: John Holzmann
Sent: Tuesday, November 18, 2008 9:49 PM
To: Family
Subject: RE: Holzmann – Tax Planning – charitable – 2008

Data I think we will want to discuss in Maui.

I will avoid any comments at this point. I think we do need to talk about how we (all) should move forward.

Love,

Dad/John

From: L____
Sent: Friday, November 07, 2008 4:39 PM
To: John Holzmann
Subject: Holzmann – Tax Planning – charitable – 2008

John,

Attached is our estimate of remaining deductible charitable contributions that can be made by year-end.

The Bottom of the schedule (BLUE) shows the total contributions to date, the total limit based on projected income, and the amount remaining to contribute.

The bottom line John is…as a family unit you can make $______ additional deductible contributions. You may give this to either a 30% charity (Holzmann Foundation) or 50% foundation (church, mission agency, etc.).

I have not isolated Luke’s $5,000 contribution. If the company wants to make that…this only reduces the total that can be made.

I also have not considered _______ contribution for the year.

Of the $______, I have already included the corporate December monthly contribution to your church. The $_______ is EXTRA contributions that you can make.

___________________________________

John, as you will see when you play around with this…to make the full amount allowable for the FAMILY…some of the family (Luke and Justin) end up not being able to deduct all of the contribution. This of course assumes you are making the contribution through the company.

To avoid the nondeductible amount to the family members, an alternative is to make a distribution from the company to the family INDIVIDUALLY, then shift the money around so that you and the other family members make the contribution.

For instance…If the company makes an additional contribution of $_______ . . . then Justin (and all family members) can fully deduct his (and their) proportional contributions from the company.

That however . . . leaves the rest of the family able to still make deductible contributions of $_______.

If this amount is instead distributed to all the family members, Justin and Luke can make nontaxable gifts to the rest of the family in order to fully deduct the contributions.

At the bottom of the spreadsheet I have shown how that can be done.

This is all pretty easy and no gift returns need to be filed. We just need to make sure that the charity understands WHO is making the contributions and provides the correct documentation in the name of the individuals.

We would probably shore this up with a gift letter just to document this for the files.

I will call to explain how this works.

When a failure to make these kinds of plans will “simply” mean that the government will take an additional 45% of the value of your contributions for taxes . . . I think it makes sense to make these preparations.

But Sarita and I and the kids need to be aware of what we are proposing to do . . . and why . . . and to get their agreement.

So I proposed that we would talk about these issues as a family.

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