Giving Strategies: Year-end Tax Planning

October 08, 2021

A Giving Strategies post by Jim Friedman, Director of Gift Planning & Endowment, and Deb Steinbuch, Director of Planned Giving and Endowment, Jewish Federation of Cincinnati

The end of the year has always been an advantageous time to review strategies to reduce overall income tax liability. With the upcoming second anniversary of the enactment of the 2017 tax act, this is the perfect time to review traditional tax planning strategies as well as to determine whether some new techniques could help cut your federal and state tax bills.

Determine Your Tax Bracket

One of the first steps to take is to estimate your 2019 tax bracket. Rates begin at 10% (incomes of $19,400 or less) and go as high as 37% percent (married couples filing jointly with adjusted gross incomes greater than $612,350). If you expect to be in the same or lower tax bracket in 2020, consider shifting taxable income to next year.

“Shift some of your tax burden to a future year,” suggests Jim Friedman, Director of Gift Planning and Endowment at the Jewish Federation of Cincinnati. “Some tried and true strategies for lowering your tax bill include deferring receipt of a bonus payment to 2020, accelerating remaining deductions into this year by prepaying a deductible expense, maximizing contributions to qualified retirement plans, or making larger charitable gifts. Put those saved tax dollars in your pocket rather than the government’s.”

Itemize or Standard Deduction?

The 2017 tax act dramatically increased the standard deduction. For 2019, married couples filing jointly can claim a standard deduction of $24,400. The 2017 tax act also limited the value of itemizable deductions by capping the deduction for state and local taxes at $10,000 and eliminating miscellaneous itemizable deductions.

Result: consider “bunching” two or more years’ worth of allowable itemizable deductions into a single year. For that year, you exceed the standard deduction and itemize your deductions. For the remaining years, claim the standard deduction.

Charitable contributions are the easiest itemized deduction to accelerate and bunch. One way to accomplish this: combine tax-deductible contributions that would otherwise be given in two or more years into a single year.

Deb Steinbuch, Director of Planned Giving and Endowment at the Jewish Federation of Cincinnati, suggests making charitable contributions in the “bunching” year to a new or existing donor-advised fund. “You claim the charitable deduction in the year you make the contributions. Then, spread distributions to charities over several years,” she explains.

Are you Over 70 ½?

If you are at least 70 ½ years old and are considering donating to charity, you can generate a tax saving by making the donation directly from an individual retirement account. These “qualified charitable distributions” up to $100,000 per year not only count against the “required minimum distribution” amount but also are entirely excluded from your taxable income (you won’t itemize these contributions because they are already excluded). This eliminates all federal taxes: you effectively get the value of itemizing plus the value of that increased standard deduction. And, the “qualified charitable distribution” is also excluded from many state income taxes, too. (Transfers to a donor-advised fund, supporting organization, or a private foundation do not qualify).

Action Item: Use your IRA qualified charitable distribution to pay your Annual Campaign pledge, establish a Lion of Judah or Perpetual Annual Campaign Endowment, or to establish an endowment fund to support a charitable cause of your passion with this “tax free” gift.

Investment Assets

Giving Strategies: Year-end Tax Planning2019 continues to be another good year for the stock market and other investment assets. As year-end approaches, review your investment portfolio. Consider a gift of appreciated securities to charities. You can avoid paying any capital gains tax on the value of securities transferred to charitable organizations, and you can also claim an itemized deduction for the fair market value of the securities.

Action Item: Consider gifting appreciated assets. They are fully deductible up to 30 percent of adjusted gross income and any excess can generally be carried forward and be deductible for up to an additional five years.

Action Item: Donate appreciated stock, to a donor-advised fund at the Federation. You maximize tax savings and you retain the privilege of making grant recommendations in the future.

Action Item: Sell depreciated stock; use the loss to offset gains on any sales of appreciated stock, and give the proceeds to charity -- generating another tax savings.

Jewish Federation endowment professionals are available to work with you and your professional advisors to maximize the benefits of these and other tax planning strategies for you and the Jewish community. For more information, contact Jim Friedman or Deb Steinbuch

This article is for informational purposes only and should not be construed as legal, tax or financial advice. When considering gift planning strategies, you should always consult with your own legal and tax advisors.

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