Tax Season…Limited Breaks Going Forward
You are receiving your W2s and 1099s as the first filing season under the new Tax Cuts and Jobs Act of 2017 is upon us. Unless you own a small business most everyone will be taking the $24,000 ($12,000 single filers) standard deduction and have limited tax break opportunities going forward. The only real planning opportunity revolves around how you give to charity. We have talked about this before, but here is a refresher once again as we embark on a new year:
- Qualified Charitable Distributions (QCD) – If you are over 70 1/2 and own an IRA you can distribute your annual required minimum distribution (RMD) or extra funds up to $100,000 ($200,000 jointly) annually directly to a charity. The QCD satisfies your RMD but the income is not included in your taxable income on your tax return. You get the benefits of a charitable gift regardless of whether or not you can itemize your deductions. This is a superior tax benefit as it could possibly enhance the taxation of your Social Security, Medicare Surtax, and Capital Gains tax.
- Charitable Donor Advised Fund (DAF) – In an effort to keep this blog post brief you can still get some tax benefit on your charitable gifts by bunching your deductions every three or four years as seen in Table 1 below for a married couple. The contribution to charity in the bunching scenario can be made to a DAF, so you can disperse the funds over the four years versus giving your charities a lump sum.
- Gifts of Appreciated Securities – We would still recommend giving securities that have appreciated instead of cash regardless of whether you take the standard deduction or itemize your deductions. You can also supercharge your DAF by using appreciated securities as well. There are some limitations, so please consult us or your tax advisor before implementing.
Once again, if you are giving to charity, then using a QCD or DAF may provide some clear tax planning opportunities, which will allow you to retain more of your hard earned income.