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Addition by subtraction is a very difficult concept to implement – especially in tax law. Yet, Congress made just such an attempt in the new tax law for 2018.

The new tax law substantially increases the standard deduction to reduce taxes and left in place an old law that lets you reduce your taxes without a deduction.

That sentence may have given you a headache. Let’s sort it out to see if you could reduce your 2018 income taxes by planning ahead.

When you file your taxes for calendar year 2018 in the spring of 2019, you may find that it no longer pays for you to itemize your tax deductions because they are less than the new higher standard deduction:

• For married taxpayers filing jointly, the 2018 standard deduction is $24,000 compared to $12,700 in 2017. For single taxpayers it goes from $6,350 to $12,000.

• Taxpayers over age 65 (or blind) add an additional $1,300 per person to the standard deduction if married or $1,600 if single.

This means for a married couple over age 65, their new standard deduction for 2018 will be $26,600 which in most cases will be higher than their itemized deductions.

But what if you could claim that generous new standard deduction AND make tax-free charitable contributions WHILE fulfilling your Required Minimum Distributions (RMDs)?

If you or your parents are over age 70.5, they have the opportunity to use a tax-free Qualified Charitable Distribution (commonly called a charitable rollover) from their IRA for charitable gifting. A charitable rollover from an IRA is NOT taxed AND it fulfills a taxpayer’s RMD.

Because your tax situation is unique and tax laws are complex, we strongly recommend consulting your qualified tax professional before making any tax decisions. In the case of charitable rollovers there are several catches which you should discuss with your tax professional:

• You cannot claim an itemized deduction for a charitable rollover.

• The receiving charity must be a qualifying public charity.

• You need to be sure to tell your tax preparer about any charitable rollovers as they are not documented in the annual tax forms you receive.

• Charitable rollovers are limited to $100,000 per taxpayer per year.

• You must be at least 70.5 when the charitable rollover is done, so this strategy may not work for beneficiary IRAs.

• You may not do a charitable rollover from a 401(k), 403(b), or other employer sponsored account. Only IRA or Roth IRA accounts are eligible.

As you plan your 2018 charitable giving, be sure to evaluate whether a charitable rollover could allow you to reduce your income taxes in addition to the generous new standard deduction.

Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.


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©2018 Investors Advisory Group, LLC

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Investors Advisory Group, a registered investment advisor and separate entity from LPL Financial.

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