On December 22, 2017, President Trump signed into law The Tax Cuts and Jobs Act, which was the most sweeping rewrite of the tax code in more than 30 years. While the provisions of this tax reform bill went into effect on January 1st of this year, most of the provisions affecting individuals are temporary and are slated to sunset in 2025 if not re- ratified. But until then, with proper planning, one can save even more in taxes than might first meet the eye. There are new rules that you need to know about Personal Exemptions and Standard Deductions.
In 2017, taxpayers could deduct $4,050 per exemption (the taxpayer, their spouse, and their dependents). The new rule states that Personal Exemptions are currently suspended while the Standard Deduction has effectively doubled to $12,000 for individuals and$24,000formarriedcouplesfiling jointly – add $1,300 if you are blind, disabled or age 65 or older, or $1,600 if you’re an unmarried taxpayer.
Additionally, the tax-deductibility of the state and local taxes (SALT) is capped at $10,000. So if your house is paid off, you have no mortgage interest, and you max out your SALT deduction with your income and property taxes, your charitable giving receipts will need to exceed $14,000, or $16,600 if you’re a married couple over 65 filing a joint tax
return, for you to itemize. You will need to inspect Schedule A of your 2017 tax return and apply the new rules to see if you’ll be itemizing your deductions this year or taking the standard deduction.
“I understand all that, and we’ll be taking the standard deduction this year, but where’s this tax-saving you hinted at?”
Consider prefunding your 2019 charitable contributions this year. Before the end of the year, donate the amount you annually gift to your favorite charities letting them know it’s your contribution for next year. If you don’t want to give it to the charities directly, use a Donor Advised Fund (DAF) to secure the charitable donation this year and have the dollars distributed next year. This strategy potentially allows you to itemize your deductions this year and take the standard deduction next year. It can be repeated every other year to maximize your tax savings.
Want to save even more taxes? Use appreciated assets you’ve held for more than one year to gift to the charities or the DAF. You can forego the need to pay capital gains taxes and still get a charitable receipt for the fair-market-valuee of the asset. If this sounds intriguing, please talk to your advisor to see if this is a viable strategy for you. If you don’t have an advisor or one that discusses things like this with you, call our office and we’ll analyze your situation and see if this is right for you.