This month we wanted to introduce some tax planning strategies for 2018 to take advantage of some of the new tax law changes. The main changes we are considering in these recommendations are related to the standard deduction doubling. The standard deduction has gone from $6,000 to $12,000 for single filers and from $12,000 to $24,000 for married filing jointly. This may impact clients who make charitable donations to qualified charities each year. With the standard deductions doubling, some clients may not itemize and thus will not take their charitable donations. Please consider:
Over 70.5 - If you’re over 70.5 and you have IRAs or other tax deferred accounts you must take something called a Required Minimum Distribution (RMD) each year. If clients are planning to donate to a qualified charity they should consider doing a qualified charitable distribution. This is where a portion (or all of the RMD) is paid directly to the qualified charity, while the balance (if any) is paid to the IRA owner. The portion that goes to the charity will not be recognized as income to the IRA Owner. This will reduce the gross income of the IRA owner; they then will be able to take the new, larger standard deduction while also benefiting from the charitable donations. This way they will be able to deduct their charitable donations without itemizing and then take the standard deduction. If you’re interested in this strategy contact R.O.I. before you take your RMD for this year.
Not over 70.5 - If you are not 70.5 and you still make charitable donations each year you also may not be able to deduct them due to the higher standard deduction. If so, you may want to consider making some or all or your 2019 charitable donations at the end of 2018. This may help you be able to itemize in 2018 and be able to deduct your 2018 and 2019 donations, and then take the standard deduction in 2019.
The amounts you donate to charities and other issues sh
ould be considered before implementing this strategy. Contact R.O.I. or a tax consultant for further, customized instruction.