Bogleheads On Investing Podcast · bogleheads

Episode 83, Phil DeMuth, "The Tax-Smart Donor" and how to optimize your lifetime giving plan, host Rick Ferri

June 21, 2025·1 hr·2 clips

If the owner gets hit by a bus tomorrow, does the business die with them?

This episode features host Rick Ferri interviewing Phil DeMuth, author of "The Tax-Smart Donor," to explore tax-efficient charitable giving strategies. Phil DeMuth is a returning guest and financial expert who provides detailed guidance on optimizing donations. Rick Ferri admits he learned significant new information from DeMuth's book, despite his own financial expertise. The discussion covers the history of the charitable tax deduction, which originated around 1916 when tax rates spiked to 67% to fund World War I. They define a qualified charity as typically a 501(c)(3) organization, which donors can verify via the IRS website. Giving to foreign charities is possible through U.S. feeder organizations or donor-advised funds with international expertise. Donor-advised funds, like those at Vanguard or Fidelity, act as charitable holding tanks for tax-efficient giving. The episode mentions Daffy.org as a low-cost, tech-focused donor-advised fund alternative. Private foundations, while offering control, incur a 1.37% annual tax and have more restrictions than public charities. The hosts clarify that 501(c)(4) organizations, like the NRA or Planned Parenthood, generally do not provide tax deductions for donations. A key insight is that charitable deductions are "below the line" on tax forms, meaning they don't reduce adjusted gross income and thus don't lower Medicare IRMAA taxes. Due to high standard deductions, about 90% of taxpayers get no immediate tax benefit from typical annual charitable gifts. The "bunching" strategy involves consolidating multiple years of donations into one tax year to exceed the standard deduction threshold, often using a donor-advised fund. Donating highly appreciated securities directly to charity avoids capital gains taxes and provides a deduction for the full market value. A qualified charitable distribution (QCD) from an IRA allows individuals over 70½ to donate up to $108,000 annually without it counting as taxable income. The estate tax, currently with a $14 million per person exemption, can be reduced by charitable bequests, though giving during life often provides additional income tax benefits. Surprisingly, donating cash allows a deduction up to 60% of adjusted gross income, but mixing cash and securities drops the limit to 50%. If securities donated have short-term gains, no deduction is allowed—only long-term appreciated assets qualify. Founder's stock or private company shares are risky to donate due to complex IRS rules like the "assignment of income" doctrine. Some states impose both an estate tax and an inheritance tax, potentially leading to five different taxes on the same inherited IRA assets. The hosts note that proposed tax bill changes, like raising the SALT deduction cap, could significantly impact charitable deductibility for high-tax state residents. The tone is educational and conversational, with the host frequently sharing his own revelations from the book. The style is practical and detailed, focusing on actionable strategies rather than theoretical finance. This episode is ideal for investors or retirees seeking to maximize their charitable impact while minimizing their tax burden. Listeners who do not itemize deductions or have no interest in charitable planning may find the content less relevant.

Listen to the show on

Apple Podcasts Spotify

Play clips from this episode More from Bogleheads On Investing Podcast