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Three Strategic Mid-Year Tax Tips

With summer 2019 now underway, here are three strategic mid-year tax planning tips.

Itemizing Strategically Is A Thing. In 2018, for the first time, the Tax Cut and Jobs Act (TCJA) nearly doubled the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. The number of taxpayers eligible to itemize was slashed by 60% by the TCJA. Only about 12% of taxpayers are still eligible to itemize expenses for medical, dental, home-mortgage and other loan interest, charitable contributions and miscellaneous fees, including those for tax preparation and investment advice. With just a bit of forethought, you can plan to bunch deductions once every three years, or maybe two. Itemizing strategically may materially reduce your income tax bill. If you did not itemize deductions in 2018, bunching itemized deductions in 2019 may boost your total itemized deductions well beyond your standard deduction. If not, you may want to plan on bunching and itemizing next year. The near-doubling of the standard deduction was intended to simplify federal taxation but has actually complicated it. Millions of the nearly 20 million taxpayers no longer eligible for itemizing now must strategically plan to itemize every two or three years.

Donor Advised Funds. One of the ways to boost your deductions this year is by giving to charity, and one of the easy ways is to give through a donor advised fund (DAF). With a DAF, you can split gifts among different charities. You contribute securities or cash and claim the deduction that same year. If you know you will be taking a taxable capital gain on an investment before the end of 2019, it's wise to consider donating appreciated securities to a DAF. You receive a deduction on the amount you contribute and avoid paying a capital gains tax. In addition, the charity receives the full amount of your largesse. If you donate cash or securities to a DAF in 2019, you can take a deduction on your 2019 return but wait to grant the money to a charity next year, or in 2021, and can take the deduction. Brokerages offer with DAFs. They invest your donations but charge an investment management fee and administrative expenses. We offer strategic guidance and can answer your questions about this.

Large IRAs. If you live in a state with an income tax, you might want to consider setting up a non-grantor trust in a state with no income tax. Why? Say you have a $1 million IRA. Placing it in a non-grantor trust in a state with no income tax avoids state income taxes. That's big! At your death, under the SECURE Act bill expected to be enacted before the end of 2019, your heirs would be required to distribute the IRA you leave them within 10 years. According to Financial Advisor News Service, which we are licensed to distribute, placing your IRA in a non-grantor trust in a state with no income tax allows your beneficiaries to avoid paying state income tax on the distributions from the IRA. To be clear, capital appreciation and dividend income on your IRA can be free of state income tax by applying this strategy! A recent U.S. Supreme Court decision upheld the legal concept behind this strategy and out-of-state trusts are likely a device that retirees will hear about in the mainstream financial press in the months ahead.


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Index
How To Avoid State Income Tax On Distributions From IRAs
Watch The Fed Closely In The Months Ahead
Say Goodbye To Stretch IRAs And Get A New Plan
Tax Alert: Plan Now For The Demise Of Stretch IRAs
Prepare For A Sweeping New Law On Retirement Account Taxes
U.S. - China Trade War Coverage Distorts Economic Reality
How To Give Gifts And Not Trip On The Gift Tax
Give To Charity From An IRA To Lower Your Tax Bill
Staying Realistic About Investing Amid Volatile Market Swings
How To Swap Real Estate And Defer Taxes, Maybe Forever
As A Final Act of Love, Plan Thoughtfully
How To Sell Your Small Business And Pay No Taxes
Risk And Tax Effects Of An Installment Sale Of A Home
The New Math Of Renting Out A Vacation Home
Opportunity Zone Investment Frenzy Requires Caution

This article was written by a professional financial journalist for Centricity Wealth Management and is not intended as legal or investment advice.

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