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Year-End Opportunities

Year-End Opportunities for Those Who Plan on Itemizing Their Deductions

How did the recent Tax Reform affect those who make charitable gifts? One of the key considerations for tax payers each year is whether or not to itemize their deductions. The Tax Cuts and Jobs Act of 2017 did not eliminate the charitable deduction for charitable gifts. However, the Act essentially doubled the standard deduction to $12,000 for individuals and $24,000 for those filing jointly. The decision to itemize hinges on whether or not your combined itemized deductions exceed the standard deduction. If so you would be better off to itemize and use the higher itemized deduction amount on your return.

If you are one who plans to itemize your deductions, there are tax strategies that could help you increase your deductions and, therefore, maximize the financial impact of your giving.

Consider Doubling Your Gift This Year:  By contributing an additional amount, or (“bunching”) next year’s gift with your donation for this year, you can make sure that your additional amount will be tax-deductible this year. Next year, if you choose not to itemize, you could still take the standard deduction.

Example:

Barbara normally makes $5,000 in charitable contributions each year and her expenses that she can itemize total $11,000. Under the new rules, her itemized deductions now fall below the $12,000 standard deduction for individuals.

In 2018, she decides to contribute $10,000, $5,000 for 2018 and an additional $5,000 donation for 2019. The larger donation would push her itemized deductions over the $12,000 standard deduction. This would allow her to enjoy tax benefits this year for her additional contribution, originally planned for 2019.

In 2019, she could take the Standard Deduction since her itemized deductions will likely be below $12,000 due to her pre-paying her 2019 contribution in 2018.

By “bunching” gifts, Barbara will be able to increase her combined deductions over two years. Instead of taking the Standard Deduction in both years, “bunching” would allow her to exceed the Standard Deduction in 2018, i.e., increase her itemized deductions, and then take the Standard Deduction in 2019.

Consider Contributing Appreciated Stock:  A gift of appreciated stock can provide a double benefit for you if you itemize your deductions. First, you are entitled to a charitable deduction for the fair market value of the stock on the day of the donation. Again, this will increase your itemized deductions and reduce your taxes due. Additionally, donating the stock to charity will allow you to avoid paying the capital gains taxes that would have been due had you sold the stock.

The above strategies are just two of the options that could be helpful to those who plan on itemizing their deductions. For additional information, feel free to contact John Holmberg, in Advocate’s Office of Gift Planning, at 630-929-6945 or john.holmberg@advocatehealth.com.

**Consult with your tax and financial advisors before initiating any tax planning strategy.