A Last-Minute "New Tax Law" Tactic as published in InsideNova.com
December 22, 2017—As I write this, I assume that the GOP tax plan will be signed into law and mostly go into effect January 1, 2018. Is there anything you can do now, before the rules change? The general advice is to push income into 2018 when tax rates should be lower and accelerate tax deductions into 2017 where they should affect a greater tax savings. At this late date, you likely have little control over the timing of your income and tax writeoffs with one exception: how much you contribute to charity.
Under current and new tax law, you reduce gross income by certain deductions to arrive at taxable income. Taxpayers can choose from a “standard” deduction or, if higher, “itemized” deductions for the total of allowed medical expenses; real estate, property, and state income taxes; mortgage interest; and charitable contributions.
Under the new tax law, the standard deduction is doubling from $6,350 to $12,700 for individuals, and from $12,000 to $24,000 for couples. If you will claim the standard deduction in 2018 instead of itemizing, you will have a larger deduction than in 2017. This is good news. But then your formerly deductible expenses no longer affect your taxable income; they become essentially worthless as write-offs. If your cash flow allows, a simple tax-planning strategy may be to double charitable contributions before year end, then contribute $0 in 2018 when it won’t help reduce taxes anyway.
Continue to double up charity every-other year if your itemized deductions will be higher than your standard deduction in those charity-paying years. This way, your charitable contributions can still reduce taxes.
Another, more complex strategy is to contribute a large amount to a “Donor Advised Fund” (DAF) before year end. The entire contribution will qualify as an itemized charitable deduction in 2017. Then you distribute the funds to charities in future years at any pace you choose. (You can also contribute appreciated securities to your DAF, which will avoid future taxable capital gains as these securities are sold.)
BUT … before implementing any tax strategy, seek professional guidance. Maximum contributions are limited.