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Important update related to new tax law





The House and Senate just passed the biggest change in tax laws since the Tax Reform Act of 1986.  The president has already said he will sign it.  We’ll not discuss the politics of whether it is good or bad here but will explore a possible benefit for us on our 2017 tax return.

You may have already heard that these new tax laws for tax years 2018 and beyond will increase the standard deduction to $12,000 for a single person and $24,000 for a married couple filing jointly. This is approximately double the current levels. In addition to this, some itemized deductions that were available in previous years will no longer be deductible.  These two changes may mean that many people who have always itemized their deductions may find that they will no longer need to do so.  While they may have had enough deductions to reach the old lower threshold, they may not have enough to reach the new $12,000 / $24,000 threshold.

With that in mind, let’s talk to those who make sizable charitable contribution on a yearly basis.  While they will still benefit you in 2017, they may not benefit you in 2018 since you may not reach the new larger standard deduction levels.

Here is something you may wish to consider to save you some tax dollars in 2017 while not losing anything in 2018.

If you have access to the funds to do so, you might want to consider doubling your contributions in 2017 and then NOT making any contributions in 2018 (unless you wish to do so).  You still get to take the new larger standard deduction in 2018 while having gotten the benefit of the donation in 2017.

I know this may sound confusing so here is an example:

Let’s say a person normally gives $10,000 per year to charity.  (You can substitute whatever number you normally give to charity here.)  They have already done that throughout 2017. Now, right here at the end of the year, they decide to go ahead and donate another $10,000 which is what they normally would give in 2018. That would mean that they would not make any charitable contribution in 2018 because they already pre-gave it in 2017.  They could still give for something special in 2018 if they wished to. Their total contributions for 2017 would end up being $20,000 which they can fully deduct (in most cases) on their 2017 tax return. For 2018, they would still be able to take the $12,000 / $24,000 standard deduction which means they will still be getting a huge deduction, in many cases more than ever before.

Allow me to make two points related to this:

  1. This only works for those who have free funds available to do this.
  2. The contributor / taxpayer tax savings can be significant.  Using the example above of donating $20,000 instead of $10,000 in 2017, the additional $10,000 in contributions could mean the following savings.
    1. 20% tax bracket – $2000 savings
    2. 30% tax bracket – $3000 savings
    3. If they gave half that, the savings would be half.  If they gave twice that, the savings would be twice also.
    4. Please note that we have used round numbers here for illustration purposes, that every situation is different, and that there may be exceptions in certain situations.

Since your donations must be completed by December 31, 2017 and we are almost already there, it is important to move quickly on this if you desire to take advantage of this situation.

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Heritage Income Tax Service, Inc. | 5581 Portsmouth Blvd., Portsmouth, VA 23701
(757) 488-7232 | Fax (757) 488-1368

Heritage Income Tax offers a full range of tax preparation services. Located in Portsmouth, Virginia, we serve the entire Hampton Roads area including the cities of Chesapeake, Virginia Beach, Norfolk, Suffolk, Newport News and Hampton.