LSJ Opinion

’Tis the season for savvy 2018 tax planning — and allergies

You’ll have to see your doctor about how to deal with your allergies, but the prescription for the headache tax-season causes is simple: proactive tax-planning. With all your tax information readily available and at your fingertips you should be getting your plan in place for 2018 and, with the changes in the “Tax Cuts and Jobs Act,” it is more important than ever to be prepared.
You’ll have to see your doctor about how to deal with your allergies, but the prescription for the headache tax-season causes is simple: proactive tax-planning. With all your tax information readily available and at your fingertips you should be getting your plan in place for 2018 and, with the changes in the “Tax Cuts and Jobs Act,” it is more important than ever to be prepared. Bloomberg

I think it’s fitting that tax season occurs around allergy season, because many people seem to have an allergic reaction to taxes, with a good number waiting until the very last minute to file. This year, the deadline to file falls on Tuesday, April 17, due to the regular deadline — April 15 — being a Sunday and April 16 falling on a public holiday in Washington, D.C.

Although you may feel disdain in dealing with both your taxes and your allergies, my advice is to take a proactive approach to avoid a future headache.

You’ll have to see your doctor about how to deal with your allergies, but the prescription for the headache tax-season causes is simple: proactive tax-planning. With all your tax information readily available and at your fingertips you should be getting your plan in place for 2018 and, with the changes in the “Tax Cuts and Jobs Act,” it is more important than ever to be prepared.

A few months ago, my January column in this space discussed several provisions in the new tax code that are very positive for charitable giving, including the continuation of Qualified Charitable Distributions, or QCDs, from the IRAs of those older than 70  1/2 years old and the increase to 60 percent for the maximum adjusted gross income allowed to be deducted for charitable contributions.

Additionally, the Pease limitations that gave a haircut to the itemized charitable deductions of high-income earners were repealed with the new tax law.

There’s been concern expressed by many in the nonprofit community about the doubling of the standard deduction to $12,000 for an individual and $24,000 for a couple, but I still maintain my alternative outlook and do not believe this change will negatively impact charitable giving.

There is an important tax-planning tool that a number of charities provide, including the Truman Heartland Community Foundation with which I am affiliated, to assist people with obtaining the most tax savings in under revised federal tax laws. That tool is a donor-advised fund, or DAF.

It’s essentially a charitable giving savings account, but a DAF is an efficient way to create your own family foundation. It is much more cost-effective that creating a private foundation.

When you make contributions into a DAF, you immediately receive a tax break then you can make grants to nonprofits out of the fund at a later time. It can be used as an important tax-planning tool for a charitable couple who may not have itemized deductions exceeding $24,000 each year.

By bunching two or three years’ worth of contributions in one calendar year, they may be able to exceed the standard deduction and receive the charitable deduction.

For example, let’s take a couple who have deductions of state and property taxes plus a mortgage-interest deduction totaling $15,000 per year. If they are currently making charitable contributions of $7,000, their total itemized deductions equal $22,000. With a standard deduction of $24,000, there’s no benefit to itemizing.

However, if they put three years’ worth of contributions, or $21,000, into a DAF, that same couple would have $36,000 in itemized deductions and thus could itemize and receive a bigger tax savings.

During the next 3 years, the couple could make their typical $7,000-per-year contributions to their favorite charities from the DAF, taking the standard deduction during the next two years during tax preparation.

By utilizing a DAF, it’s possible to benefit from a larger charitable deduction by bunching their three years of contributions into the fund then spreading out the grant awards across a three-year period.

I know tax planning can cause a headache all its own, but with the help of professionals, like those at Truman Heartland, your charitable-giving plan doesn’t have to be difficult. But if you procrastinate and wait until the last minute, you may not get the full tax advantage of this approach.

My advice to everyone is to take your medicine now and be strategic about your plans for the future. Do some tax planning that ensures you have the most effective approach to your taxes, minimizing your 2018 oblifation while also enhancing your charitable giving.

To reach columnist Phil Hanson, the president and CEO of Truman Heartland Community Foundation, send email to hanson@thcf.org or call 816-912-4181.

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