Year-End Tax-Planning and Gift Strategies Whether You Itemize or Not
The most important new development affecting 2018 year-end planning is the legislation, popularly known as the Tax Cuts and Jobs Act, that was enacted late last year. It will cause many people to confront the question of whether to itemize their deductions or to take the standard deduction, a decision that was relatively easy in the past. That’s because the standard deduction was almost doubled, to $12,000 for single taxpayers and $24,000 for couples filing jointly.
It is estimated that the number of Americans itemizing for this tax year will be about 20 million – down from the approximately 45 million who have been itemizing in recent years, according to Congress’s Joint Committee on Taxation. About 80 percent of charitable giving from individuals historically comes from those who itemize, according to Giving USA.
Those who make the largest contributions to charity will still itemize; their philanthropy alone is likely to exceed the standard deduction. The issue of whether to itemize arises for those whose total deductions will be less than – but close to – the standard deduction:
- Should they find some more deductions so that they can exceed the standard deduction and itemize?
- Or should they try to lower taxes by reducing their taxable income for the year?
Whether you decide to itemize or to take the standard deduction, creative charitable gift strategies can help with your year-end tax planning.
Two Strategies if You Plan to Itemize and Want More Deductions
1. Make Next Year’s Gift Now and Save Taxes
Without a doubt, the one deductible expense over which you have the most control is your charitable giving. If you want to itemize deductions for 2018, consider doubling up on your planned charitable giving this year and skipping your usual giving in 2019 – ensuring that your generosity will result in tax savings. You can contribute to a Giving Fund (NCF donor-advised fund), receive a donation receipt at the time of the gift and then grant the proceeds out over time.
Carol and Jack have been giving $6,000 each year to a few charities for which they have a deep passion. But the total of all of their itemized deductions will not quite get them over the $24,000 standard deduction for couples. Consequently, they decide to make their 2019 gift to their NCF Giving Fund in addition to their usual 2018 gift, both in the amount of $6,000. In their 24 percent federal tax bracket, making next year’s $6,000 gift now will enable them to realize almost $1,440 of tax savings they would have forfeited if they were unable to itemize this year and next.
2. Give a Distribution From Your Retirement Plan
It is quite possible that you have more assets in your 401(k), 403(b), IRA, or other retirement plan than you will need for future living expenses. Did you know that you can make your charitable gifts with some of those assets? If you are aged 70 1/2 or older and you have an IRA, you can make a tax-free direct charitable transfer to NCF from that IRA (See article on IRA rollover for details.) If your retirement funds are not in an IRA or if they are in an IRA but you are under 70 1/2, you can withdraw cash from your retirement fund and then contribute it into a Giving Fund (donor-advised fund). The amount distributed will be added to your taxable income, but you will be able to make your gift with retirement funds at no tax cost – provided you itemize deductions and can deduct the entire distribution.