“Simple” Tax Update

Written by Rick Huff

Charitable Contributions, Required Minimum Distributions and the Standard Deduction

In the past many advocated the importance of getting an early start with tax planning for the New Year. With the passage of The Tax Cuts and Jobs Act of 2017, they are now saying it is imperative as there are so many changes in our tax code.

For us, planning began early December as provisions were being finalized. In fact, we took numerous actions for a number of you due to planning strategies being curtailed in 2018.

One area that merits increased attention is the charitable contribution deduction. For many, charitable contributions will be less of a tax saving benefit, since the standard deduction is being doubled for joint and single taxpayers.

The standard deduction has increased to $24,000 for couples filing jointly, $12,000 for those filing as single. For a couple filing jointly, if your state income tax deduction (which is also limited to an overall total of just $10,000) and charitable contributions are not greater than 24,000, you as the taxpayer could lose the benefit of these deductions.

However, this could work to your benefit if you are age 70 1/2 and older along with having to withdraw required minimum distributions (RMDs) from your IRA or retirement plan accounts. In this case, utilizing qualified charitable distributions (QCDs) will be a tremendous benefit. QCDs permit directing your RMDs to the charity of your choice, and NOT recognize the income on the front page of your Form 1040.

In fact, these actions are analogous to double dipping. You still have the overall benefit of an increased standard deduction; plus, with a QCD, you are reducing the required minimum distribution income reported on the front of your 1040.

But wait, as the TV commercials scream, there’s more. Because you are decreasing adjusted gross income on the front of your Form 1040, it could get even better: You may benefit as this could reduce your Medicare Part B premiums.

All of this planning is a bit complex, but it’s what we love to do for you, our clients.

In the upcoming months, we will be contacting you about the advantages of carefully planning your charitable contributions if you are also taking required minimum distributions.

Remember it’s not just out about income, it’s about how much you keep after taxes.