Getting ready for the holidays is only part of the fun this time of year. Don’t forget you only have a few weeks left for year-end tax planning as well. I know, what a Scrooge to even mention that. There are still a few things you can do to reduce your income taxes for 2019. But don’t wait until New Year’s Eve. Leave yourself some extra time to set up accounts and make donations to be sure they count for this year.
Since the Tax Cuts and Jobs Act passed in 2017, nearly 29 million more households will be better off taking the standard deduction instead of itemizing.* Charities that previously benefited from charitable contributions that taxpayers itemized have seen donations shrink as a result of the tax law change.
There are still two easy ways to contribute to your favorite charities and get a tax break:
First, you can open a donor-advised fund (DAF) and contribute at least two years’ worth of contributions, or enough to itemize your deductions. Then next year, you can take the standard deduction and continue alternating years. You don’t even have to name your charities yet, just open the account before year-end. This can be a great way to partially offset a large capital gain or bonus as well.
I like DAFs because they allow you to donate anonymously if you wish, so you don’t end up on another mailing list. You can also invest the money and let it grow before you release funds to a charity in the future. This makes for great legacy planning for families wanting to pass on the tradition of providing for those less fortunate.
The second idea is for taxpayers over age 70 1/2 and required to take distributions from a pre-tax IRA. You can direct all or part of the RMD (up to $100,000) directly to a charity. This does not involve itemizing, and you can still take the full standard deduction. The charitable contribution comes off the taxable amount of your distribution, therefore making it a pre-tax donation with pre-tax dollars.
The ability to use Qualified Charitable Distributions, or QCDs, was made permanent in the last tax law. So even if you are not yet old enough, you have something to look forward to.
This reduces your income, which is also used in calculating your Medicare premium. So, this could benefit you in several ways.
Don’t let December slip by without looking at any tax benefit you can gain before year-end. Considering the nice investment returns for 2019, you may not have many losses to take on your investments, but it never hurts to check. Of course, maximize your 401(k) and fund your IRA if you are eligible.
Patricia Kummer has been a Certified Financial Planner and a fiduciary for over 30 years and is Managing Director for Mariner, LLC d/b/a Mariner Wealth Advisors, an SEC Registered Investment Adviser. Please visit www.marinerwealthadvisors.com for more information or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Securities offered through MSEC, LLC, Member FINRA & SIPC, 5700 W. 112th Suite 500, Overland Park, KS 66211.
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