Published by Taylor Financial Group
We are always looking for ways to help you save money, especially on taxes. That’s why we’ve done our research to find new ways you might be able to do just that. With the Tax Cuts and Jobs Act setting such a high standard deduction, you may not be able to fully claim deductions for state or property taxes or for charitable donations. Indeed, the estimate is that 90% of taxpayers will begin itemizing this year. However, with a little clever planning on our part, we may be able to help you exceed the standard deduction, start itemizing again, and lower your tax bill. The big idea is to bunch your deductions into one year to help you exceed the standard deduction. We also have two other – more creative – ideas to consider.
Qualified Charitable Distributions Make Tons of Sense
If you are an IRA owner or beneficiary over age 70½, a qualified charitable distribution (QCD) up to $100,000 could be a great charitable giving option for you. The only catch is that, in order to qualify as a QCD, the funds must be transferred directly from the IRA to the charity. When that happens, the QCD satisfies the required minimum distribution (RMD) and the deduction is not included in taxable income on your tax return. This means that you satisfy your RMD and you are able to get the benefits that come with making a charitable contribution regardless of whether or not you choose to itemize your deductions.
Using a QCD can be particularly beneficial for those who give more and are in a higher tax bracket. Even better, if your spouse is also eligible to use his or her IRA, the benefits only increase because your QCDs can be combined. For an individual, the total annual QCDs from all IRAs cannot exceed $100,000. But, you and your spouse can each make up to $100,000 of QCDs, for a combined total of $200,000!
Although a tax deduction for the contribution is not allowed, the amount transferred from the IRA to the charity is excluded from taxable income and counts toward your required minimum distribution. You also end up with a greater tax benefit than if you had just gotten a deduction, as a result of the decrease in your taxable income. It’s truly a win/win.
Donor Advised Funds are Hot!
Another approach is to create a donor advised fund (DAF). With a DAF, we can help you make multiple years’ worth of gifts to the fund in one tax year, and then disperse your gifts later. DAFs have been around for a while, but they have been underrated. Now, with the new increased standard deduction, creating a DAF can be more advantageous than ever before.
The major benefit of the DAF is that you are able to donate funds (or appreciated securities) and receive an immediate tax deduction, although the actual funds may not be given to charities until sometime in the future—even in a completely different tax year. For example, if you have 1,000 shares of a company with a very low-cost basis, you can hand these shares over to a DAF and take an immediate deduction for the full value of the donation (subject to IRS limits) and then decide when you want to send those funds to your favorite charities, sometimes over several years. On the contrary, if you just sold shares to give money to a local soup kitchen, you would end up having to pay the capital gains tax on the sale. Get it? Basically, giving the donation to a DAF separates the timing of when the deduction occurs versus when the charity actually receives the money, which allows you to fulfill your charitable goals while maximizing your deductions and saving money overall.
For those who are charitably inclined, the increased standard deduction requires that we consider the numerous ways to get more bang for your buck when making contributions. But, with thoughtful and clear tax planning, we can help you make smart choices and save money. If we haven’t already reviewed your 2017 tax returns, give us a call today to start that process. The sooner the better!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
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