I had planned to take a break from discussing what’s going on in the markets and the world’s craziness in this quarter’s newsletter and focus instead on charitable giving and some of the charitable activities of White Pine employees.
And then El Salvador decided to try to establish Bitcoin as their national currency and a JPEG file in the form of an NFT sold for more than a Monet painting.
That’s a bit too crazy to let slide without some comment.
Bitcoin is one of many digital currencies. The allure of a digital currency resides in its security in a digital world and in its being outside the control of any national government. Theoretically, it should have a very stable store of value to it as no entity can just print more of it to satisfy a debt payment. While it is possible digital currencies become an important means of transactions in the not-too-distant future, presently it’s the Wild (to put it mildly) West of their existence. It’s difficult to imagine that a digital currency will ever be completely unregulated by the US government (at least for transactions done in the US). As for how much each currency should be worth, well, I have no idea – and neither does anyone else. Bitcoin could be worth about $45,000/coin as it is now. It’s also possible it could be worth $1,000,000/coin or as little as 3 cents/coin. At this point in the game, picking the winner and calculating an intrinsic value for it is nearly impossible. So, it is worth what the next guy buys it for. Interestingly enough, El Salvador giving some legitimacy to the coin sent the price of it down 15% over a three-day period.
The NFT file that sold for nearly $70 million is an even crazier concept. An NFT stands for Non-Fungible Token. That basically means that each NFT is completely unique. The blockchain technology that runs the digital currency Ethereum is used to assure that there can only be one original file associated with each NFT. So, that artwork that sold for $70 million is a one of a kind. Except, the actual file is digital. That means you can copy it and have an exact replica.
This isn’t like a print of a Monet that resembles the original. It will be exact down to the last bit that makes up the file. Only one person can hold the original file, but anyone can hold an exact copy. If you don’t understand why something like that can be sold for $70mm, then I think you understand the concept just fine. I’ve enjoyed the Netflix series, Ozark, so I suppose Marty Byrd could figure out a money laundering use for them. Meanwhile, drug cartels in El Salvador will probably enjoy capitalizing on the anonymity of Bitcoin.
October 2020 - Volunteering with LifeRemodeled
In a few days, White Pine employees and several of our clients will volunteer our time and weed whacking skills to help clean up some of the streets near the Durfee Innovation Society in Detroit. We have volunteered annually in various capacities for Life Remodeled, the organization that puts this together. Life Remodeled partners with the residents of Detroit to build strong communities. Its most recent long-term project involves creating the innovation center at Durfee which provides human services to local residents along with many workforce training opportunities. We have enjoyed working with Life Remodeled.
Last quarter, a few White Pine employees volunteered for Our House and HouseN2Home. My wife, Laura, volunteers at HouseN2Home, an organization that helps people who are exiting homelessness by using donated furniture and household goods to convert houses into functional, comfortable and inviting homes. My daughter, Anna, works at Our House. Their mission is to help young people confidently and successfully transition from foster care to adulthood. For their newest program, they’ve leased an old sorority house near Eastern Michigan’s campus.
We, along with many other volunteers from HouseN2Home, spent the day organizing, cleaning, and setting up all the rooms. At the end of the day, the house felt welcoming and warm. Hopefully, its residents, who have previously been battered around by life, will feel like it’s a refuge. Read the full article here.
Charitable Giving Strategies
The market has been very strong for over a decade now with The Great Recession far behind us. Yet, the recovery hasn’t benefited everyone equally. As such, many of our clients choose to build charitable giving into their financial plans. Volunteering is a great way to help others in our communities, but this isn’t always possible due to physical limitations or time restrictions. Donating cash, however, is always appreciated by these non-profit organizations. While a direct donation is quick, easy, and very helpful, there are strategies that may give you more bang for your charitable buck.
Many organizations accept appreciated securities. They can then sell the security and get full value. If you were to sell that same security to write a check, you would have to pay a capital gains tax on the appreciation. That tax ranges from 15% to 20%. If your income is high enough, there’s an extra 3.8% tax added. Your state may tax it as well (in Michigan, that rate is 4.25%). Finally, if the gain was short-term, you’ll pay ordinary income taxes which could be as high as 37% plus state taxes.
In the last tax bill under the Trump administration, the standard deduction for individuals and families increased dramatically. This increase made it unnecessary for many to itemize deductions. If you don’t itemize, your charitable gift isn’t tax deductible. One strategy used to make your donation tax deductible is to front run several years of giving into one. You can do this by setting up a donor advised fund. Any contributions to the fund are deductible in the year the contribution is made. You can then spread out the distributions of the funds over several years. This allows you to get a big deduction one year, though the next few years you would go back to the standard deduction. The donor advised fund makes it very easy to track your donations. Plus, the sponsor of the fund (we use Schwab) will verify that the charity is in good standing with the IRS. Another way to ensure you are getting a tax deduction is to contribute to a charity directly from an IRA. While you won’t actually get a deduction on your tax return, the money will come out of the IRA tax-free which is essentially the same thing. You do have to be 70½ years old in order to use this strategy, and there is a $100,000 limit per year.
These are just a few of the basics on charitable giving. We’d be happy to discuss building charitable giving into your financial plan using these techniques. Also, if you’re interested in learning more about some of the charities we talked about in this newsletter as well as about a few others that White Pine employees feel passionate, please go to the web page we created that has links to these organizations. All, I’m sure, would love to connect with you. We’ve found we derive the most meaning and pleasure when we focus our giving on areas about which we are passionate. Perhaps, the same holds true for you.
Anthony J. DiGiovanni, CFA