Category Archives: TAX

This is the place to discuss tax related issues.

More on L3C’s (Written by Robert Lang)

A particularly well written analysis posted on LinkedIn by Robert Lang, creator of the L3C. -Richard

We’ve had various questions in recent days about the L3C and thought this particular information might be useful.

All states have no choice but to recognize L3Cs from another state as they are a variant form of LLC and every state must honor every other state’s LLCs just as you can use a Delaware corporation in Idaho. In so far as revenue rulings go, the ones on LLCs would apply. It may elect pass through status just like any other LLC and would most likely do so. The IRS does recognize L3Cs but it is not going to give them the “Good Housekeeping” seal because it is not concerned with the generic group. Its interests relate to whether any particular L3C meets the conditions for investment by a particular foundation as a PRI. This is foundation specific. What is an acceptable PRI for one foundation may not be acceptable for another. The foundation must still use due diligence and work with its attorney both to choose the investment and negotiate the operating agreement to be sure if fulfills the foundation’s needs.

An L3C can get a grant from a foundation or the foundation can make a PRI investment. There are also ways for individuals and corporations to make a tax deductible contribution that ends up in the L3C. The L3C has the advantages of the flexibility of organization under the LLC laws. If properly put together the L3C integrates mission and income and eliminates UBIT issues and the regulations regarding percentage of control that a foundation may have in a for profit. Since a PRI into an L3C can replace a grant it also does not fall under the jeopardy investment regulations.

The L3C as an LLC allows the members of the L3C to make investments, have responsibilities, receive income, and have voting power in disproportionate relationships to one another. The LLC is effectively a partnership with corporate protection. That means that the operating agreement or contract among the members, can within the framework of the law, essentially embody whatever the members agree upon. This makes the L3C very well suited to membership by a disparate group of organizations.The membership could include corporations, nonprofits, government organizations and individuals. The nonprofit, could be given total day to day control and never invest a dime.

Finally the L3C designation as a brand will come to be recognized by the world at large for what it is. The transparency and efficiency will elevate L3C organizations from obscurity to high public awareness. Once that is achieved it will be far easier to get public investment in the L3C which is the eventual goal. We need to greatly reduce the burden on the very limited resources of the nonprofit community and allow businesses to perform many of the services in our society which can be performed under a for profit umbrella. For profits make a positive financial contribution to the community. An L3C will not be exempt from property tax so its existence makes positive contributions to the community without making a hit on the public treasury.

Written by Robert M. Lang
CEO, L3C Advisors, L3C

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Filed under ECONOMY, FOUNDATIONS, INVESTING, NON-PROFIT & CHARITY, SOCIAL ENTREPRENEURSHIP, strategic philanthropy, TAX

Foundations Listen Up: Why PRI’s and L3C’s Matter

Whenever I see something that looks GREAT, I wonder if I am missing something…You know, the old; “Too good to be true”. Over the last many months, I have been doing due diligence on the most appropriate corporate structure for a film project I am working on called “Time To Impact”. The film has a social agenda; use the film to inspire philanthropy, social entrepreneurship, and civic engagement to turn around Paterson, NJ, the third largest city in the state and one of the poorest in the nation in 365 days.

The biggest concern is raising money for the film project. I wondered whether I should set up as a for profit or nonprofit. Going the for profit route didn’t seem to feel good. For one thing, I didn’t want to have a perception that we were doing this just to make money. In addition, I wasn’t comfortable being the guy who says; “Oh, this is going to be the greatest thing since An Inconvenient Truth and Supersize Me. The appeal isn’t in how MUCH people can make, but for the benefit that the film will have from a social standpoint. The pure for profit model just didn’t feel right. On the other hand, setting up a nonprofit involves setting up a 501(c)3, a process that takes many months, requires a board of directors, and other things that just seemed to be a distraction from the main goal at hand. Compound those issues with the fact that we are in a very difficult fund raising environment, we are likely to be grouped with everyone else asking for money, the grant process itself is a labor intensive process, and getting access to for profit money is less likely (if not eliminated), and the nonprofit model also didn’t seem to fit. Months of contemplation on this, and still no decision. Recently, I started taking a closer look at L3C’s.

The more I learned about L3C’s, the more attractive they looked for our film project. Over the last month or so, I have had discussions about my project with some of the top minds in country on the L3C. They seem to agree. This seems to be the perfect fit. So what’s so great?

L3C’s are hybrids of for-profit and nonprofit entities. They are a for-profit company that first and foremost has a social agenda, and making money secondarily. This seemed to address my concern about the issue of perception of my motivation of “doing this just for money”. My understanding is, there are no limits to the profit, as long as the mission is socially oriented. Second, and what I perceive as most beneficial and cutting edge, is the fact that L3C’s automatically qualify as “Program Related Investments” (or PRI’s) for foundations. This is a big deal. Why?

According to Foundation Center, Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes.”

So what does that mean? It means a lot. Foundations are required by the IRS to give away 5% of their assets each year in order to maintain their tax status with the IRS. Traditionally, this 5% takes the form of grants to 501(c)3 charities (the kind we would have been). As a Certified Financial Planner™ Professional, I look at the 5% requirement this way. Starting with 100 percent of the foundation’s investment portfolio, 5% is given away. Those grants hopefully are being given out to worthy causes who will “invest” the money effectively and use it prudently, however it is difficult to determine what the “social return on investment” actually is because in many cases it is difficult to measure the actual social return. I could write another entire column on just that subject alone, but let’s not go there right now. So what is the actual social return on investment of the 5% money? Enter the L3C.

L3C’s are businesses just like any other. Good ones should have a tight business plan and expectation that they are going to earn a profit or else they would not exist. If a business goes to a bank for a loan, the bank wants to know what the likelihood the loan is going to be repaid. That is determined largely on the strength of the business. The BIG deal with the L3C and for the foundation, is that a foundation can invest in the L3C and has the opportunity to actually earn a return on the money. Better yet, the foundation’s investment into a PRI (L3C), COUNTS toward the 5% they must give away each year. Ok let’s stop and recap now.

From a purely capitalistic “non social” viewpoint for a second, the 5% given away represents a 100% loss (looking at it strictly as an investment). Foundations give to good causes which is why they are able to get a tax deduction for the contributions when money is put into them.

If a foundation has an opportunity to earn a return on money and get it back to give again by investing in profitable social business ventures, AND it counts toward money they must give away anyway, why aren’t more foundations doing this?

In an environment of depressed investment portfolios, isn’t this a wise thing do do?

Worst case, the investment doesn’t make money and you lose your investment. Consider it a grant, which is what you are already doing anyway.

Am I missing something here?

If I have piqued your interest, watch the video below. (I’m “The Philanthropic Advisor” in the trailer)


Foundations, let’s make a difference and turn around a city. Please consider helping us fund this film. Email me at rich@timetoimpact.com to inquire.

Join the Movement:

Time To Impact Website

Facebook Fan Page

Time To Impact on Twitter @ImpactMovie

Richard J. Krasney on Twitter @PhilanthropyCFP

Richard J. Krasney on LinkedIn

By the way, nothing in this should be considered legal or financial advice and you should not rely on my opinions or the information expressed here in place of doing your own due diligence. Consult your financial professional before making any important financial decisions. This is just my opinion. End CYA.


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Filed under ECONOMY, FOUNDATIONS, INVESTING, NON-PROFIT & CHARITY, SOCIAL ENTREPRENEURSHIP, strategic philanthropy, TAX

The Taxpayer Certainty and Relief Act of 2009

BAUCUS UNVEILS LEGISLATION TO PROVIDE TAX CERTAINTY, RELIEF TO MIDDLE INCOME FAMILIES
Finance Chairman’s proposal makes permanent middle income tax rates, child tax credit, fixes estate tax and AMT for all Americans

Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) today announced legislation that would make existing tax breaks permanent for working families and individuals including the child tax credit, marriage penalty relief, and lower middle-income tax rates among other provisions. The measures were originally passed as part of tax legislation in 2001 and 2003, but are set to expire in 2010. Baucus unveiled his proposal after a Finance Committee hearing today that examined the affect of the current economy and the U.S. tax code on America’s middle class.

“Today we’re offering a piece of certainty during an uncertain time for millions of hard-working, honest Americans. These measures are not excessive or outrageous, but timely and targeted, and will build on earlier efforts to stabilize the economy,” said Baucus. “By guaranteeing a little extra cash in the pocket of working moms and dads, and by making sure that the AMT and the estate tax can move with the economy, we avoid sweeping tax increases for millions of American families. By promising spouses tax fairness in marriage, giving help to those helping others through adoption, and by giving lower-wage workers confidence at a critical time, we can restore our footing, and begin to climb back to a position of national strength and economic security.”

Original co-sponsors of the Baucus legislation include Senator Jay Rockefeller (D-WV) and Charles Schumer (D-NY).

Elements of the Baucus proposal include:

– Permanent protection for more than 20 million Americans from being hit by the alternative minimum tax

– A measure to make permanent the 10, 25, and 28 percent individual tax rates, as established by the Economic Growth and Tax Relief Reconciliation Act of 2001

– Permanence of the income eligibility threshold for the child tax credit, recently set at $3,000 by the American Reinvestment and Recovery Act of 2009, to give families up to $1,000 for every child under age 17

– For taxpayers in the 10, 15, 25, and 28 percent tax brackets, a proposal to make permanent a reduced tax rate on capital gains and dividends, as established in the Jobs and Growth Tax Relief Act of 2003 and extended by the Tax Increase Prevention and Reconciliation Act of 2005

– Permanence of the marriage penalty relief provision, so that married couples will not be taxed more severely filing jointly than they would as two single persons filing separately

– Estate tax relief, making permanent 2009 levels for taxation of family possessions and property. The measure would also index exemption amounts for inflation

– Makes permanent the 45 percent credit rate for the refundable earned income tax credit for lower wage taxpayers with three or more children, as passed in American Recovery and Reinvestment Act of 2009

– Permanent expanded assistance for families that adopt a child including a $10,000 tax credit per eligible child

– Makes permanent the 35 percent credit rate for child care expenses up to $3,000 for one child and $6,000 for two or more children
The Taxpayer Certainty and Relief Act of 2009

I. Permanent Middle Class Tax Relief

Individual Tax Rates. Current ordinary income tax rates are imposed at 10, 15, 25, 28, 33, and 35%. These tax rates expire at the end of 2010. The proposal would make permanent the 10, 25, and 28% tax rates. (The 15% tax rate is already permanent law.)

Capital Gains and Dividends. The proposal would make permanent the reduced tax rate on capital gains and dividends for taxpayers in the 10, 15, 25, and 28 percent brackets. The 2003 tax bill created a new tax rate of 15 percent (5 percent for low-and middle-income taxpayers, going to zero percent in 2008) for dividends. Prior to passage of this bill, dividends were taxed at ordinary income rates. The 2003 bill also reduced the capital gains tax rate from 20 percent (10 percent for low- and middle-income taxpayers) to 15 percent (5 percent for low- and middle-income taxpayers, going to zero percent in 2008). These reduced tax rates were originally set to expire at the end of 2008, but were extended until the end of 2010 in the “Tax Increase Prevention and Reconciliation Act of 2005” (TIPRA).

Child Tax Credit. Generally, a taxpayer may claim the child tax credit to reduce income tax liability by up to $1,000 for each qualifying child under the age of 17. If the amount of a taxpayer’s child tax credit is greater than the amount of the taxpayer’s income tax liability, the taxpayer may receive a refund if the income threshold is met. The Economic Growth and Tax Relief Reconciliation Act of 2001 set the income threshold for child tax credit refundability at $10,000 (indexed). The American Recovery and Reinvestment Act decreased the threshold for the 2009 and 2010 tax years to $3,000. The proposal would make these changes to the child tax credit permanent.

Marriage Penalty. A “marriage penalty” exists when the combined tax liability of a married couple filing a joint return is greater than the sum of the tax liabilities of each individual computed as if they were not married. A “marriage bonus” exists when the exemption amounts and rate brackets are larger for the joint returns filed by married couples than for singles’ returns. As part of the 2001 tax cuts, the standard deduction for married filers was scheduled to increase annually until 2009. In addition, the bill eliminated the marriage penalty in the 15% tax bracket and for the earned income tax credit. The marriage penalty relief expires on December 31, 2010. The proposal would make the marriage penalty relief permanent.

Dependent and Child Care Credit. The dependent care credit allows a taxpayer a credit for paid child care expenses for qualifying children under the age of 13 and disabled dependents. The credit is 35% of eligible expenses. This rate decreases by 1% for each $2,000 of income above $15,000, but the rate never falls below 20%. Eligible expenses are limited to $3,000 for one child, and $6,000 for two or more children. (After 2010, the amount of eligible expenses returns to the pre-2001 amounts of $2,400 for one child and $4,800 for two or more. In addition, the 35% credit rate decreases to 30% and the income threshold decreases to $10,000.) The proposal would make 2009 law permanent.

Earned Income Tax Credit. The EITC is a refundable tax credit available to low wage workers. Because the credit is refundable, a taxpayer will receive a refund if the amount of the EITC is greater than the amount of the income tax liability or if no income tax liability exists. The American Recovery and Reinvestment Act increased the credit rate for taxpayers with three or more children from 40% to 45% and increased the phase out range for all married couples filing a joint return (regardless of the number of children) by $1,880. The proposal would make these changes permanent.

Adoption Credit and Adoption Assistance Programs. Current law allows a maximum adoption credit of $10,000 per eligible child and a maximum exclusion of $10,000 per eligible child. These benefits are phased-out for taxpayers with modified adjusted gross income in excess of certain dollar levels. These tax incentives go back to $5,000 per child ($6,000 for child with special needs) after 2010. The proposal would make 2009 law permanent.
II. Permanent Alternative Minimum Tax Fix

For the 2009 tax year, the American Recovery and Reinvestment Act provided a patch for the AMT, setting the exemption amount at $46,700 (individuals) and $70,950 (married filing jointly), and allowed the personal credits against the AMT. When this patch expires, the exemption amounts will return to $33,750 (individuals) and $45,000 (married filing jointly) and the personal credits will not be allowed against the AMT. The proposal would make the 2009 exemption levels permanent and index them for inflation. In addition, the proposal will permanently allow the personal credits against the AMT.
III. Permanent Estate Tax Relief

Under current law, U.S. citizens and residents must pay taxes on transfers of property both during life and at death. These taxes are due under three separate tax systems: the estate tax, the generation-transfer skipping tax, and the gift tax. Currently, the top tax rate for all three taxes is 45%. Both the estate and generation-skipping transfer taxes currently have a $3.5 million exemption for individuals ($7 million for couples). The gift tax has an exemption of $1 million ($2 million for couples). For the 2010 tax year, the estate and generation skipping transfer taxes are repealed. In the same year, the gift tax rate will fall to 35%. In 2011, the estate, generation skipping transfer, and gift taxes are scheduled to revert back to pre-2001 levels, with an exemption of $1 million, a 55% rate, and a 5% surtax on large estates.

The proposal would make permanent the 2009 estate, gift, and generation skipping transfer tax laws going forward and index the exemption amount. The proposal would also reunify the estate and gift taxes. In addition, the proposal would allow portability of exemption for spouses. Finally, the proposal would increase the amount available under the special use valuation revaluation to equal the estate tax exemption.

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Filed under ESTATE PLANNING, FINANCIAL PLANNING, TAX

Is Obama’s Estate Tax Plan The Nail In The Nonprofit Coffin?

We folks who deal with high net worth clients have wondered for years what will happen with estate taxes when the current plan sunsets in 2011. Let me make a guarantee here (which is something I don’t often do). I guarantee that estate taxes will be addressed before 2010 which is when they are set to return to zero and return to 2001 levels when 2011 begins. Already, congress is abuzz with talk about what to do about it. Frankly the estate tax has been the running joke in the planning community for years when congress said that the estate tax would disappear in 2010. People said that they would start to write special instructions for “pulling my plug”, but only if it were advantageous from an estate tax planning perspective. All kidding aside, regarldless of what gets decided, I guarantee that there will be implications. As The NY Times reported in 2005, the last time there was talk about eliminating the estate tax, charities remained shockingly silent for fear that any attempts to block the measure would be donor suicide. I mean really, would you give to a charity that intentionally lobied for higher estate taxes? Are you crazy? Make no mistake, this time, I guarantee there will be legislation being passed and it will have a major impact on both the wealty, and nonprofits.

While many in the nonprofit community have been quite vocal against Obama’s plan to lower the charitable tax deduction, if history is any guide, I don’t think they will be speaking up now. Perhaps they should. I believe that the changes to the estate tax will have a much bigger impact on charities than the income tax deduction. Charities felt that they had nothing to lose by speaking up on the proposed change to the deduction because the change would be bad for BOTH the wealthy, AND the charities. By lowering the deduction, the wealthy would be losing a tax incentive to give to charity (perceived as bad for the wealthy), and the charities would be hurt by that. Nobody had a problem speaking up to say this was a bad idea. The estate tax is a completely different animal and I would argue, will hurt charities much more than the income tax deduction. Have you heard anyone talking about this? Nope. This will be a silent walk to the grave for the nonprofits. Here’s how it will happen.

Year/ Exclusion Amount /Max Top tax rate:
2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 repealed 0%
2011 $1 million 55%

In the above chart, notice that the estate tax exemption amounts have been going up since 2001. From 2001 until 2008, the exemption amounts didn’t go up that much; essentially from $1-2 million. The period from 2001 to 2002, up until recently, was the worst period of time for the markets since the great depression. While the exemption amounts did go up slightly from $675,000 to $1 million dollars, that was not a big increase in real dollars for the wealthy. From 2003 up until 2008, the stock market experienced a bull market while the exemption amounts only increased from $1 million to $2 million. This year however, the exemption amounts went to $3.5 million. That means that a husband and wife can leave $7 million dollars free from federal estate taxes. Compare that to only $2 Million total in 2002 ($1 million for each individual), and that’s a lot of extra millions. Let’s add somthing else here. Portfolios are down much more than the last recession. This means that exemption amounts are much higher, and people have less money. Well that’s great for the wealthy right? How about for the nonprofits? They are still talking about how the drop in the income tax chariable deduction is going to impact them. Folks, wake up, you have a new problem. It’s called the estate tax. While nonprofits have had lots of other things to deal with lately, I fear that what’s being discussed with the estate tax is going to be yet another blow to their ability to continue to operate as they had been.

Before the wealthy shoot me here, let me point out that there’s a fine balancing act that needs to take place here. Nonprofits play an essential role in society and they perform many responsibilities for society that the government isn’t good at and has no place in. If charities are not fundamentally strong, society is worse off and someone else needs to pick up the slack. If the government needs to do more, guess what, that means we all will wind up paying higher taxes anyway. It’s in our nation’s interest to make sure they remain financially healthy.

At present, the latest word on the street is that the Democrats support leaving the estate tax at the current level of $3.5 million. The exemption amount has never been this high before and only time will tell how much of an impact that will have on charities and donations. In my business, avoiding paying estate taxes is one of the primary functions that a wealth manager helps clients peform. While emotion has been the primary driver of charitable contributions, not taxes, I fear there’s a perfect storm that is lining up. For many in the wealth managent community, charity is only a means of avoiding taxes for their clients. Unless an adviser can use charity as a way to save taxes for their clients, they generally don’t bring it up. Doing so means less under management for the adviser and that translates directly to less fees. I assure you, right now, many advisers are just struggling to keep their doors open and discussing charity with their client is the last thing on their mind. The big question is, how many potential donors were lost by dropping investment portfolio values, raising the estate credit amounts from $2 million to $3.5 million, and cutting the charitable income tax deduction?

Just to be clear, I would be in favor of  freezing the estate exemption limits. I feel people pay enough in taxes and they shouldn’t have to pay again when they die. Make no mistake though, this will be another blow for charities. Don’t drop the charitable tax deduction, raise it, by a lot. I’d also be in favor of paying higher income taxes to pay for things like universal health care, education, and alternative energy. I realize you can’t have your cake and eat it too, I just worry that the cake recipe is looking like pie and we’re all going to get some in the face if we don’t think these things through more clearly.

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Filed under ESTATE PLANNING, FOUNDATIONS, NON-PROFIT & CHARITY, TAX

Anderson Cooper 360 Story on Obama Plan to Cut Charitable and Mortgage Tax Deductions

Charity Navigator CEO, Ken Berger talked with CNN’s Anderson Cooper about Obama’s plan to cut the charitable tax deduction.

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Nonprofit Recession Survival Guide to Getting Donations

First the markets, then Madoff, now the Obama administration is proposing reductions in the charitable tax deduction for your biggest donors. What else could possibly go wrong? Oh yeah, I forgot to mention the snow day and nobody came to work. One thing is for certain; raising funds in the current environment is much more difficult that it was last year at this time. Here are some specific suggestions and things to keep in mind as you talk to donors:

Speak the Unspoken Truth
Personally, I like this tactic. Call it like it is. What are the most powerful four words in the English language? “I NEED YOUR HELP”. Talk to your existing donors about what is happening and the state of your organization. Tell them you need help. Let your donors know how the current environment is impacting your organization.

Be Specific With The Ask
This is something that is always a good idea. Even before the mess the last year, donor fatigue was certainly an issue. I believe that in general, nonprofits do a poor job marketing themselves when it comes to being specific about their accomplishments, how donations help, and making specific connections between the ask and the impact. Kiva.org is the opposite of everything I just said. Their supporters choose the cause (lending to a specific entrepreneur who needs a loan), and Kiva reports back on the status of the loan from the individual it was given to. It’s a terrific example of the donor getting involved directly with the cause that they support. Strategic, venture, or tactical philanthropy; call it what you want, people have been demanding more accountability in recent years. This trend towards greater accountability and transparency is only likely going to increase. Help your donors go from a “spray and pray” approach go giving, to being focused and knowing exactly what they are giving to.

Create A Donor Adviser Panel
Invite your top donors into a room for a “Manhattan Project” style round table. The objective of the group is not to gang up on them and tell them how badly you need their money, but to come together and brainstorm new ideas for raising funds. Let them know how much you have appreciated their past support and you are offering them a “no money required” way to help make a huge difference with the organization. Ally you want is their input. Not only will they feel appreciated, do you think there might be a possibility they could cough up a little extra after sitting in on that? If I were a betting man, I’d say your odds are pretty good. That’s not the objective though. Remember that. You are after their ideas and things you are not thinking about right now.

Address Financial Fear
Your donors are shell shocked with what’s going on in the markets now. Everyone is. Do you want to be someone’s hero? Address this head on. This is the one I think that nonprofits have traditionally been the most uncomfortable with. Even large organizations that have planned giving departments have struggled with “the line of control” that exists between donors and their professional advisory team. While planned giving folks want to “get that seat at the table”, and be INVOLVED in the conversation with the financial adviser, attorney, or CPA at the time giving decisions are being made, often they are not. Understand that there is a line, and there should be. Generally speaking, the unspoken truth is that donors know that planned giving officers have one motive, to get money for their organization. This is nothing new though, so what?

The real opportunity to be a hero here is to talk about some of the things that donors are afraid of now and things that they can do to feel more financially secure. The number one concern of the wealthy is that they will lose what they have. While this has always been the biggest concern, the fear is now being realized. Understand that unless your donors feel financially secure, they will likely not give at the levels they had given previously. You cannot help them feel more secure, but you can make recommendations that will. One of the things that’s at the top of the list is recognizing that donors and high net worth clients traditionally have had multiple advisers giving them advice. Their accountant is discussing their returns, their attorney discusses their will (or might not have in a while), and their “financial adviser” is talking only about their investments. Most people have no idea who they should be talking to about the big picture and their ability to achieve what’s important to them.  No wonder you have such a hard time getting a seat at the table, that’s because there usually IS NO table. The advice your donors receive is sporadic and fragmented in professional silos and generally NOBODY is discussing the big picture! Markets aside, the tax changes occurring are faster than the drop in their portfolio value and now is a good time for them to be meeting with their team to reassess where they are and reevaluate their goals.

The key to success lies in your ability to have a trusted relationship with your donor, understand what attracted them to you, what inspires them, what they are afraid of, and how to connect them with the appropriate resources who can help them achieve everything that’s important to them. To the extent you make yourself a master networker and not make it about you and your cause, you’ll be a hero. Ask your donors, “How can I help, YOU?”

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Filed under Current Events, ECONOMY, ESTATE PLANNING, Financial Life Planning, FINANCIAL PLANNING, INVESTING, NON-PROFIT & CHARITY, TAX, venture philanthropy

Does Obama Owe the Nonprofit Community an Explanation?

I’ve been discussing Obama’s proposed tax changes reducing mortgage interest and charitable contribution deductions with just about every intelligent person I know who has been following this story. Not one person I talked to can make a rational arguement as to how this directly benefits anybody. I consider myself to be a pretty open minded guy and I want to know what I am missing here. You would think there would be a good reason for this.

I’ve had a few comments from people that it’s necessary to roll back some of the tax benefits that the rich have enjoyed under Bush and bring them back to levels that are Clintonlike. Some have said that the rich can afford to pay more in taxes, while others have said that cutting the charitable contribution deduction won’t impact giving levels all that much. I’ve described myself as fiscally conservative and socially liberal and while I do support adding to education, healthcare, and alternative energy, I haven’t been able to see how cutting the deductions on real estate and charitable contributions fit into the big picture.

These tax issues will only impact indivudials who earn over $250,000 per year in income, so sure, why not take more from the rich for other things. Folks, you are missing my entire point. You might even be surprised to hear that I support raising income taxes (BLAH!!!! Rich, you are no fiscal Republican you CLOSET LIBERAL!!!). Whoa, hold on a sec…I never said that people who have or make more shouldn’t pay more in taxes. That arguement has no part of this conversation so drop it. Second, forget whether this will only have a MINOR impact on giving and people will still give because, yes, most people give because they want to, not only for tax purposes. Folks, I’m with ya here too. Totally agree. Just explain to me what benefit we will see from cutting the deductions on mortgage interest and charitable contributions.

Ok, let’s start with the mortgage issue. For one thing, wasn’t real estate the source of the mess we’re in now? (Don’t start with “No it was those greedy folks on wall street” either). If we want to sove the real estate mess, one of the things we need to do is stop the decline in home prices. How do we do that? Prices will stabilize when credit markets open up and people begin buying again. How do you get people to start buying again? Don’t we want to get investors back into the market? How do we do that? Hmmm…Let’s see…How do you get your children to want to do something? Special treats? Any parents out there? Do you use treats to drive you children’s behavior? How about an incentive to purchase real estate? How about INCREASING the deduction for mortgage interest? How about offering INVESTORS (THE WEALTHY ONES) MASSIVE INCENTIVES to put money into real estate. How about not just limiting it to mortgage interest? Perhaps throw some other goodies in there. While I’m certainly not suggesting that we create a tax incentive aimed only at the wealthy, wouldn’t you agree that this would be a pretty juicy “scheme” to get those “greedy rich folks” to put some of their “bad money” into some of those empty bank owned homes that ar lowering propery values in our neighborhoods. Hmmm, not such a bad idea…I suggest creating some kind of similiar incentives to restore the health of the non-profit community. While we don’t live in a charity (although your spouse or your mother might disagree with you), charities provide a vital role in American society. Without a healthy and thriving nonprofit community, the services that they provide would either go away, or require the government to provide those services. I ask again; doesn’t that sound like a very “big government” agenda to you?

Ok, so the long and short question I pose to you is this: Regardless of what income bracket these rules would impact, does it make ANY sense to you to be removing incentives to investments in sectors that are among the leaders lagging the economy? Am I missing something here because this doesn’t seem to make one bit of sense to me. I certainly don’t claim to know everything since I’m just a Certified Financial Planner Professional, not a politician who knows much more than I. I really do like Obama and what he stands for and what he wants to do for healthcare, energy independence, and education. These areas are broken in my view. These are important issues for the nation and ones that I relate to personally. Frankly,  I don’t think that the Republicans have these issues on their agenda and about the only reason I’m a regiestered Republican is because I generally agree with their economic agenda. To be completely honest with you, I’ve never been registered with either party until this year’s presidential election when I became a Republican and voted for Obama. How’s that one for ya? I like to keep ya thinkin…

Ok, so now you know my concerns and questions. Anyone want to explain this to me? Anyone want to start a new political party?

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