Are you one of the almost 30 million taxpayers that can no longer itemize deductions? “Bunching” your charitable contributions may help take it back.
The Tax Cuts and Jobs Act of 2017 increased the standard deduction from $12,700 in 2017 to $24,400 in 2019 for Married Filing Jointly (MFJ). The number of filers who itemize fell from about 46.5 million in 2017 to just over 18 million in 2018; almost 90% of taxpayers took the standard deduction.
The higher standard deduction limit coupled with the State and Local Tax (SALT) limit of $10,000 makes it difficult to break the $24,400 limit. Here are the major expenses you can claim as itemized deductions:
- Medical and dental expenses in excess of 10% of adjusted gross income
- State and local taxes and real estate taxes are subject to an aggregate deduction limit of $10,000
- Home mortgage interest (subject to limitations on mortgage amount to no more than $750,000)
- Casualty or theft losses (only if from an event declared a disaster from US President)
- Charitable gifts
You can maximize your charitable deduction tax benefit by “bunching” the next few years of your planned donations into one year. Frontloading a Donor Advised Fund (DAF) is an efficient way to increase your charitable deduction in one year enabling you to itemize deductions. For example, if you plan on gifting $10,000 per year for the next five years, you could currently donate $50,000 to a DAF and distribute the funds over the next five years as planned. This would push your 2019 deductions above the standard threshold, providing you with a larger deduction. Funding your DAF with appreciated assets provides even further tax benefits.
Please call us if you would like to discuss opening and funding a Donor Advised Fund, or other tax reduction strategies.
Written by Gary Pomerantz, CFP® Financial Advisor/Partner and Andi McNamara, CFP® Director of Financial Planning at Wingate Wealth Advisors