Charitable Planning CSI Style – Dissecting A Tax Return

Charitable Planning CSI Style – Dissecting A Tax Return

The “discovery” process with prospects is a fundamental building block of planning – meant for gathering information and documentation to better understand the starting point for their planning journey.

Records to review include asset statements, mortgage documents, tax returns, and estate planning documents – family information, goals, impressions, constraints and dreams is also needed. The data can lead to interesting discoveries and further questions that the advisor must interpret to formulate a plan.

Consider the lowly personal tax return, a/k/s IRS 1040 and all its glorious schedules – it gives an advisor the basics. But looking at the tax return for charitable opportunities requires another perspective and a deeper dive.

Where to Begin:

First, look at Schedule A, where itemized deductions appear.

There is a place for cash and non-cash charitable contributions – any cash contribution will let you know what charities are of interest to your prospect and how much they’re giving. If your prospect doesn’t itemize, they’re probably not in range of the big gifts you’re looking for.

This is a wonderful opportunity to find out more about: their reasons for picking these particular organizations and amounts, their interest in continuing to give, their intent to raise or lower the amount, and the methodology of the gifting. If cash, it’s the Why? Is there a better way, a better asset, a better structure to accomplish what they’re trying to accomplish? These simple queries set the advisor apart from competitors.

Second, look at the very first page of the 1040.

If the earned income is significant, ask if that income level is normal or if that year is an exception. If it’s standard and the client doesn’t spend it all on an annual basis, that may mean there is excess (taxable) cash flow that can be reallocated to charitable purposes.

Many high earners make much more than they spend – paying unwanted income taxes on those excess earnings. Inquire if the taxes are unwanted. If so, there are a number of possible strategies to be deployed; e.g. contribution to an IGNĪT Plan™, a Charitable Lead Annuity Trust, a Charitable Remainder Trust, and others. 

Third, look and see if there are large one-time bonuses, stock option exercises or long term capital gains tax.

Located on Page 1 of the return. Each of these items represents an opportunity.

Do bonuses happen annually? Are they of similar size? Is the bonus entirely consumed or is it found money? Option exercises typically mean there are a series of option grants and they vest regularly. How much and at what price? Is there tax mitigation planning that can be done to offset some of the extra taxes that are attached? Capital gains can be a one-time liquidity realization but often represent just a portion of what may happen regularly.

Asking your prospect if they know that Capital Gains Tax is an optional tax almost always gets their attention – opening the door for you to offer numerous charitable solutions that will avoid that tax next time around.

In the next article, we’ll continue to analyze the tax return as a forensic document – leading to charitable discussions. In the meantime, download the entire module of Opportunity Recognition here.

Give me a call at (704) 698-4055 or email me at for more information.