Yes, I'll get to the tax moves to make by Dec. 31. Keep reading. But first I've just got to vent about some confusing year-end tax move info making the television and internet rounds.
There's a tax feature that I've seen twice on local television and a couple of times online as a video with accompanying text and it's driving me crazy!
It's about purportedly tax-saving moves to make in the last few days of 2018. Good idea. Confusing information.
Specifically, one of the points is about charitable giving, which long-time readers know I'm a big fan of from both general feel good/do good and tax perspectives.
The story/TV feature advises folks to, by the end of the year —
- Give to charity: Aside from being generous, giving your money to good causes also gives you major tax benefits. The new tax bill doubled the standard deduction for single taxpayers to $12,000.
What the what? Why was that standard deduction blurb in this bullet point, at least appended like that?
Elaborating on donation deductions: For all my tax-savvy readers, I beg your indulgence and patience while I say this again, this time in bullet points to counter the one above.
- To get any tax benefit from a charitable contribution you must itemize instead of claiming the standard deduction.
- If you claim the standard deduction, your gift still will be appreciated by the nonprofit that receives it, but you won't get a tax break.
- If your total charitable deduction amount on Schedule A is less than your standard deduction amount, then you shouldn't itemize. You always should use the deduction method that gets you the larger deduction.
- The new tax law, aka the Tax Cuts and Jobs Act that was in full effect for the 2018 tax year, dramatically increased the standard deductions amounts. They are determined by your filing status. For 2018 tax returns they are:
$12,000 for single taxpayers and married taxpayers filing separate returns
$18,000 for head of household filers
$24,000 for married couples filing a joint tax return or surviving spouses
These amounts are adjusted each year for inflation. The standard deductions listed above are for the 2018 tax year that most of us must file by April 15, 2019. You can check out the increased 2019 standard deduction amounts in part 2 of my tax inflation series.
- The new, larger standard deduction amounts mean more folks likely will claim them instead of itemizing. And that means that they won't be able to get any tax break from their charitable donations.
So the other story's original bullet point is correct, to a degree. Giving your money to good causes does provide a tax benefit, but only if you are itemizing.
And the other story's reference to the nearly doubled standard deduction amount for single taxpayers also is correct. But it doesn't fit there without a fuller explanation as to why you need to know that standard deduction amount.
Charitable giving and other year-end tax moves: I apologize going into the tax weeds on this, but it's been bugging me since I saw it and if I can't vent on the ol' tax blog, well where can I. The hubby long ago stopped listening, going into a perfect Zen state that I'll never perfect even if I continue yoga classes for the rest of my life.
As for the story/video clip that's pushing out the incomplete donation deduction information, no, I'm not going to name or link to it. There's no need to give it any additional attention or clicks.
But I will offer my own suggested year-tend tax moves you should consider making by or before Dec. 31.
1. Donate to your favorite charity. All my ranting above aside, this is a good tax move if you do itemize. Plus, it will make you feel good. You can find tips about donating and taxes in my Boxing Day post.
2. Bunch your allowable itemized expenses. The new tax law's substantially larger standard deduction amounts means that bunching could really pay off. There's no law that says you have to use the same deduction method every year and the tax strategy of bunching helps you determine when to itemize or not. Basically, you push as many of your itemized expenses as possible into one tax year.
Take, for example medical costs that you can control and for 2018 returns still have the lower 7.5 percent of your adjusted gross income. By shifting as many medical costs as you can into this year, you can get them most from them on your Schedule A. Also consider moving your charitable gifts slightly. A donation the next Jan. 1 will be as valuable to the charity as one made Dec. 31, or vice versa, and it could be more tax beneficial for you. Then in 2019 claim the standard deduction. Then bunch your itemized expenses again as much as possible in/into tax year 2020.
3. Spend all your medical flexible spending account (FSA) money. FSAs offer a great way to set aside pre-tax dollars you can spend on health care costs not covered by your insurance. But in many instances, if you don't spend the money by the end of your workplace benefits year (and that's Dec. 31 in most cases), you lose it. Some companies give FSA owners a grace period until March 15 to use the money. Others allow a rollover of at least some of the accounts' funds. But if that's not possible at your job, spend down your FSA completely — some of these unusual but allowable medical expenses can help — to ensure that it's not wasted.
4. Harvest your investment losses. If the wildly gyrating stock market has you on edge and you've decided, after careful analysis of your investments and long-range financial goals, that it's time to sell some assets, go for it. But don't just take earnings, although that could be a smart tax move to reset your basis. Also sell some losers that you can use to offset any gains you earned this year. Again, though, don't make investment or other money moves based solely on potential tax reasons.
5. Add to your retirement accounts. Yeah, an IRA or workplace 401(k) that's a stock account is scary, but if you're still many years away from retiring, you want to keep adding to these accounts. It's too late to change your workplace retirement plan for any real tax year 2018 effect, but you still can contribute to an IRA, either a traditional or Roth version.
Putting money into a traditional IRA could get you a tax deduction, depending on whether you or, if you're married, your spouse have retirement plans at work. A Roth, while made with already taxed money, will be tax free retirement income down the road. And contributions to either could make you eligible to claim retirement savers' tax credit.
Yes, you do have until next April 15 to make IRA contributions, either traditional or Roth, for 2018. But the sooner you get your money into the account, the more potential it has to grow into a really nice nest egg.
More potential year-end tax moves: Thanks for putting up with my rant. I hope it wasn't too tedious. At the very least, I hope it cleared up any tax break confusion about tax breaks for charitable donations.
I also hope that the charitable gift deduction and four other possible tax-saving year-end moves can help you shave a few bucks off your 2018 tax bill.