You can't change the new tax law but you can change your behavior and reduce your taxes. Did you know by simply changing the timing of your charitable gifting you can lower your federal and state taxes by thousands of dollars. Assume you give $10,000 to charity per year and your total allowable itemized deductions equals the new standard deduction for a married couple of $24,000. The tax benefit of your gifting $10,000 to charity is zero.
However if you accelerate the amount you plan to give over the next two years into 2018 either by direct gifting more now or funding a donor advised fund, your taxable income in 2018 will be $20,000 lower and if you are in the 22% tax bracket that's a tax savings of $4,400! Your taxable income over the following two years will be exactly the same. That's $4,400 you can keep or better yet why not give the savings to charity as well.
For those of you over the age 70 the benefits of gifting to charity directly from your IRA are even better. Assume you have a required minimum distribution (RMD) from your IRA of $10,000 and you give $10,000 to charity each year. Direct gifting of your RMD reduces your adjusted gross income by $10,000 and if you were already using the standard deduction also results in your taxable income being lower by $10,000 as well. So if you are in the 12% federal income tax bracket you save $1,200 in federal taxes but you also reduce your state of Indiana income taxes because your adjusted gross income is used for Indiana purposes. So your Indiana tax is lower by 4% or another $400! That's a total savings of $1,600 per year or $8,000 over five years.
With all tax matters you should consult your tax preparer to confirm how the new tax law affects you. Better yet call me for a review of your taxes today and more ideas on how to take advantage of the new tax law and start reducing your taxes today.
by: Ron J. Rich, CFP, President of Capstone Wealth Advisors