Year End Tax Planning: Grouping Itemized Deductions

Given that the passage of the Tax Cuts and Jobs Act in December of 2017 has changed things a bit.  Here are a few ideas on how to best take advantage of the new law.

The biggest change affecting individual tax payers is the increase of the standard deduction from $6500 to $12000 for single filers and from $13000 to $24000 for married couples.  What this change implies that in general not as many tax payers will need to itemize their deductions.  This is in line with the simplification of the tax filing process.  Weren’t not quite to the post card sized tax return yet.  But, we’re moving in that direction.

However, it leaves one of our great social traditions at a slight disadvantage.   Charitable giving is an industry of more than $390 billion per year.  In theory, all of these contributions were deductible on the tax return of the giver, and in theory they still remain deductible.  However, in practice for those taxpayers who are no longer able to itemize their deductions, because now it is much higher, they will no longer receive any additional tax benefit for their generosity.

A strategy that can be employed for taxpayers whose total deductions are near the new standard deduction level is to strategically group more contributions in a single tax year.  For example, if you normally would give $1000 per year to your favorite charity every June.  What you can do instead is give $1000 on January 1st of 2019 and another $1000 on December 31st of 2019.  The charity will essentially still receive the same amount of money per year but the timing difference can help to push up your itemized deductions in 2019, and it could push you over the threshold for itemization.  And if you are over the threshold you would actually receive an additional tax benefit for that contribution.

This same strategy can be employed for other itemized deductions such as health care expense, and local and state taxes. The more deductible expenses that can be grouped in the same year, the more deductions we can stack together, the larger the tax savings will be.

If you are not sure if this strategy will work for you be sure to consult with your favorite tax specialist and they can dive into the details of your particular situation.