‘Tis the season for good tides, merriment and for some of us…………..donations to our favorite charities! That’s why this week’s MoneyDo is “Seek to maximize the tax benefits of your charitable donations.” Here are a few insights to get you started:
1. Compare and consider if your itemized deductions exceed the standard deduction.
A taxpayer currently gets to decrease their adjusted gross income with either the larger of his or her standard deduction, OR the total of his or her itemized deductions.
Currently the standard deduction for married couples is $24,000, and for those who file single, the standard deduction is $12,000. If itemized deductions exceed those amounts, it may be favorable to itemize.
If you’re wondering what qualifies as an itemized deduction, check with a professional. Among other items, itemized deductions include state taxes paid and real estate taxes up to $10,000, medical expenses, mortgage interest and (of course) charitable deductions.
Given the law changes for 2018, it will be harder for those who donate to deduct for their charitable donations. With less than two months until the end of 2018, here are a few steps we suggest:
2. If you plan on itemizing, it may be beneficial to ‘double up’.
Sometimes called “bunching”, this strategy would mean you’d donate your 2019 contributions prior to the end of December, allowing you to deduct two years’ worth of your donations in one year. Next year, you’d skip donating (at least for tax purposes) and use the standard deduction, followed by year where you’d gift and itemize.
3. A Donor Advised Fund may be a good course for some taxpayers, allowing them to front-load their charitable donations.
A Donor Advised Fund is a philanthropic vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time.
Using a Donor Advised Fund allows a taxpayer to “front-load” several years of donations to a trust. By doing so, all of the donations become deductible in 2018.
The taxpayer can then forward those donations to a desired charity in later years thus taking a deduction in 2018 for a donation made in 2019 or any future year.
4. Consider a Qualified Charitable Distribution.
For those who are age 70 ½ and haven’t yet taken their RMD (required minimum distributions) you’re able to donate your RMD to charity through a process called a QCD (qualified charitable distribution).
A QCD allows a taxpayer to claim both the standard deduction and the charitable donation. Visit our blog post to if you are interested in learning more about this strategy: https://annexwealth.com/annex-wealth-management-team/charitable2018/ .
