In order to maximize deductions on their tax returns, taxpayers typically...

Oct 2018
Julianna Donovan

In order to maximize deductions on their tax returns, taxpayers typically take either the higher of the standard deduction or the total of their itemized deductions.  With the changes in the tax law from the Tax Cuts and Jobs Act of 2017, starting in 2018, the standard deductions have increased to $24,000 for married couples filing jointly, $18,000 for heads of households and $12,000 for all other individuals.  With this increase, many taxpayers will be claiming the higher standard deductions rather than itemizing their deductions.  When taxpayers claim the standard deduction, they receive no financial benefit from itemized deductions, which often include charitable donations. The new rules limiting state and local tax deductions to $10,000 will push even more taxpayers to opt for the standard deduction.   As such, for those taxpayers who are close to the standard deduction amount, it may make sense to batch a few years’ worth of charitable giving into one year (e.g. via a donor advised fund) when itemization is available, and revert back to the standard deduction in off years.

Taxpayers who are receiving required distributions from their IRAs will still receive a tax benefit from their charitable contributions by using qualified charitable distributions (QCD).  Using a QCD allows taxpayers, who are over 70 ½ and who are taking required minimum distributions (RMD) from their traditional IRAs, to transfer up to $100,000 from an IRA to qualified charities.  The amount transferred counts towards their RMD while decreasing the taxable amount of their distribution and thus lowering taxable income.  This tax strategy can help taxpayers over 70 ½ meet their RMD requirement while still taking advantage of their charitable donations and saving tax dollars.

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