Last month, I discussed planning issues under the 2017 Tax Cuts and Jobs Act (TCJA). In that column, I discussed issues affecting itemized deductions. I covered state and local taxes and medical expense considerations. Below are other items to consider in planning for 2019 taxes.
Charitable donations. Consider doing two years of donations every other year instead of doing the same amount each year. For example, if you normally give $100 per week to your church or synagogue, at the end of that year, consider giving all of the next year’s contributions ($5,200) at one time on December 31. That way you get $10,400 every other year in donation deductions instead of only $5,200 each year. The same is true for non-cash donations. Time the donation of clothing, furniture, toys, and other items to charities in the years you are trying to maximize your charitable deduction. You might want to let your church or synagogue know of your plans so they can budget for it.
Also, if you can’t itemize, and are over 70½ years old, you can distribute up to $100,000 from your IRA directly to a charity, and while you don’t directly get a deduction per se, you do not have to report the distribution as income and it counts towards your required minimum distribution. Note that you don’t have to donate all of your IRA distributions, so in effect, if you directly donate the amount you would normally give to charities, it’s pretty much the same as getting a deduction for that amount.
Interest expense. As mentioned above, to be able to deduct home equity interest, you need to prove the proceeds were used to substantially improve, construct or add to a qualified residence. You need to document the items paid for by the proceeds. If the proceeds were used to purchase investments, you may be able to claim the interest as investment interest expense. Additionally, if the proceeds were used to acquire or improve rental properties, the interest may be deductible as rental interest, but you will still need to trace the loan proceeds to get the deduction.
Miscellaneous business deductions. Unfortunately, these deductions have been nixed in the new law. However, there may still be some hope for salvaging things. If you have deductions related to your employment, you can approach your employer about whether or not he or she could cover some or all of those costs. In most cases, those expenses related to your employment would be deductible to your employer, but not taxable to you—one of the few win/win situations in the tax code. Having your employer pick up continuing education courses, costs of professional licenses and memberships, vehicle mileage and other such deductions would be a great benefit. Assuming you have to incur some of them anyway, even if you get a smaller raise in exchange for those expenses being paid by your employer, you still come out ahead.
The bottom line is bunching. The concepts listed for medical and charitable deductions are known as bunching deductions. We have identified clients who can benefit from these strategies, and while they may not be able to itemize each year, they may be able to pull it off every other year. That can be a very good benefit indeed. As always, run any ideas raised by this article by your tax preparer.