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Additional Year-end Opportunities

Year-End Opportunities for Those Who Plan on Taking Standard Deduction

Did the Tax Cuts and Jobs Act of 2017 increase the likelihood that taxpayers will take the Standard Deduction on their tax returns? While the Act did not eliminate the charitable deduction for charitable gifts, it did essentially double the standard deduction to $12,000 for individuals and $24,000 for those filing jointly. Remember: to take advantage of the charitable deduction, you need to itemize deductions. The decision to itemize hinges on whether or not your combined itemized deductions exceed the standard deduction.

The good news is that there are several tax strategies available to you, even if plan on taking the Standard Deduction.

Consider IRA Charitable Rollover Gift This Year

For those age 70 ½ and older, an IRA Charitable Rollover can be an effective way for you to make a charitable gift. Your contribution must be done through a direct transfer to a qualified charity. Also, any amount you choose to donate in this way, up to a maximum of $100,000, will be counted toward your required minimum distribution. The transfer will not be counted as income since it is going directly to charity. The net result is a tax-free transfer to charity, instead of you receiving income from your IRA and having to pay taxes on that income.

Example:
This year Jane must take a required minimum distribution (RMD) of $5,000 from her IRA. Since she is in the 25% tax bracket, she will pay $1,250 in taxes.

Instead of taking the RMD personally, she decides to set up a Charitable IRA Rollover for the same amount. The entire $5,000 is paid directly to Advocate Charitable Foundation. Since it is a Charitable Rollover, the entire amount counts toward her RMD and, at the same time, is not taxable to her since it was sent directly to Advocate. She avoids the $1,250 in taxes and makes a significant gift.

Consider the After-Tax Benefits of a Gift Annuity

A Charitable Gift Annuity is a simple agreement wherein you make a gift to Advocate and Advocate can agree to pay you an income for your lifetime. You would be entitled to a charitable deduction, but since you are not itemizing, you might be more interested in the after-tax income.

A significant portion of the annual payments from your Charitable Gift Annuity will be considered tax-free. That means you will pay no taxes on those dollars. It is likely that if you contributed assets currently in a bank account, you could increase your after-tax cash flow significantly.

Example:
Paul has a CD at his bank worth $10,000. It is paying him 2% interest. The CD pays him $200 a year minus $50, the taxes due at his 25% tax bracket. After taxes, he would have $150.

Paul, age 75, could transfer the $10,000 in his CD to Advocate and receive an annuity of 6.2%, or $620 annually. Of that amount, only $188 would be taxable, resulting in a tax of $47 at the 25% bracket. He would have $573 after taxes.

Paul uses same dollar amount. In one case, he receives $150 after taxes. In the other, he receives $573 after taxes–and makes a significant gift to his favorite Advocate hospital or program.

The above strategies are just two of the options that could be helpful to those who plan on taking the Standard Deduction. For additional information, feel free to contact Susan Mongillo, in Advocate’s Office of Gift Planning, at 630-929-6940 or susan.mongillo@advocatehealth.com.

** The information contained above should not be construed as professional legal, financial or tax advice. You should consult your tax advisor to identify the best strategy for your situation.