Start Reducing This Year’s Taxes Now: Six Strategies (Some Charitable) That You Can Take

Posted February 2020

By now you should have received in the mail (or downloaded) all of your 2019 tax information from employers, investment companies, retirement funds, banks, etc.—and theoretically be ready to do your taxes. As you review what you need to turn over to your CPA and other tax advisors (or use yourself), you might be wishing that you had taken some additional tax-savings actions last year—including taking advantage of the charitable deduction. If that is the case, it’s not too early to take those actions this year.

Here are six tax-saving strategies to consider. Several include charitable gifts.

Strategy 1: Use long-term appreciated securities or real estate to make your charitable gift.

If you use long-term appreciated securities or real estate to fund your charitable gift, not only can you deduct the full fair-market value from your taxes, but you also avoid recognizing or paying tax on the appreciation.

Strategy 2: Plan to claim a charitable deduction on your tax return.

If you itemize deductions, your charitable-contribution deductions generate tax savings proportional to your marginal tax bracket.

Strategy 3: Consider doubling up your charitable gifts this year in order to reap the benefits of itemizing.

For many taxpayers, itemizable deductions come close to equaling the standard deduction each year but never quite meet that amount; consequently, they elect to use the standard deduction. This is especially true since the standard deduction was increased significantly in the most recent tax legislation.

If you think you will be close to—but short of—the standard-deduction threshold, you could make your standard contribution now, early in the year, and then plan to give a similar gift late in the year in order to be able to itemize.

You will realize savings to the extent your extra gift causes your itemized deductions to exceed the standard deduction. Then you could skip your gift next year and take the standard deduction.

Strategy 4: Make a contribution to a tax-advantaged retirement program.

Your retirement contribution is sheltered from tax in the year it is made. Then it grows tax-deferred; you pay no tax until you withdraw it. Some employers may match your contribution. Adding to a tax-advantaged retirement program is the best way to increase your retirement funds.

Strategy 5: Sell losing stocks to generate a realized capital loss against capital gain.

Your capital gain and loss are “netted against each other” to determine the amount and nature of what you report on your tax return. If you plan to realize gain during the course of the year, it is generally a good idea to plan to sell some of your losers to offset that gain. Remember, though, you have to wait more than 30 days to buy a stock back or you cannot recognize the loss for tax purposes. Even if you do not have gain to offset, you can use losses to offset up to $3,000 of ordinary income.

Strategy 6: Establish a charitable life-income gift.

If you have major charitable goals in addition to a desire to enhance your retirement security, you can address both objectives simultaneously with some creative planning. You can make charitable gifts that pay you income for life. Often such plans can be arranged so that most or all of the income is paid after your retirement.

We would welcome the chance to discuss how this or another gift strategy can address your retirement-planning and/or charitable goals. Please contact us if we can be of assistance.

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