Most of the people who are dealing with income tax stuff these days are finishing up their 2017 returns. But in true journalistic fashion — or at least, what’s supposed to be true journalistic fashion — I’m looking ahead. To my 2018 taxes. And possibly your 2018 taxes, if, like me, you live in a state targeted by last year’s tax cut bill.
I’m actually following the strategy that I suggested in January about how some of us who live in high-tax states with high home values can claw back some of the tax deductions that President Trump and congressional Republicans took from us to help pay for corporate tax cuts and special breaks they gave to real estate people such as . . . Trump.
Let me show you how I’m applying the theory of what I discussed in January. And I’ll also tell you how you might be able to deduct some or all of your charitable contributions if you’re less than 70½ years old, the minimum age at which you can do what I’m doing.
Here’s what I’m doing. Instead of sending personal checks to charities, I send them checks drawn on one of my Vanguard retirement accounts. I have to take federally taxable “required minimum distributions” from my retirement accounts because I’m older than 70½ .
But by having Vanguard send me a check drawn on my retirement account but made out to a charity, I reduce the federally taxable portion of my required distributions.
This means that I’m deducting the donations indirectly — but effectively. It’s annoying, and it generates a lot of paper, including saving the statements I get with each check. But it’s going to save me money come next tax season.
When I could deduct state and local income and real estate taxes, which ran about $30,000 last year, it made sense for my wife and me to itemize deductions. But with a $10,000 maximum deduction for state and local taxes, this year, it’s Standard Deduction City for us, the first time I can remember that being the case.
If you’re in a situation like mine, it seems that my suggestion — please note that it’s a suggestion, as I don’t have standing to give tax advice — seems like a no-brainer. I get to take the standard deduction ($26,600 for my wife and me because of our age) and I get to deduct our contributions indirectly.
It’s annoying and cumbersome to have to leap through hoops rather than just write a check. But I’m getting used to it — and things have actually gotten a bit less complicated as the year has gone on.
For my first eight 2018 contributions, I had to call Vanguard, get a representative on the line, tell the rep the charity’s name, the size of the donation, whether I wanted federal income tax withheld (no) and whether I wanted state income tax withheld (yes, because contributions aren’t deductible for New Jersey income tax purposes),
I also had to listen, each time, to the seemingly endless disclosures that Vanguard, quite properly, requires the rep to recite.
But the ninth time around, earlier this month, I could fill out an online form rather than talk with a rep. I suspect that Vanguard’s competitors have similar programs in place or soon will.
For anyone like me who’s taking required distributions from retirement accounts and who expects to take the standard deduction in 2018, this strategy is a no-brainer. (It’s not my original idea, by the way. A friend told me about this retirement-income donation loophole, and I checked it out with my accountant before I wrote my advice column 10 weeks ago.)
But what if you’re not 70½ and don’t expect to get full value (or maybe any value) for your charitable contributions this year? You might be able to get a break by lumping several years of deductions together and using them to fund a “donor-advised fund.”
That way, you might end up with itemized deductions high enough above your standard deduction to make itemizing your donations worthwhile.
You can generally set up a donor fund fairly simply and quickly by using an investment firm with which you’re doing business or by using a community fund.
Unlike a regular contribution, which is deductible when you send money to the charity, the money you put into a donor fund is deductible when you write the check to the fund. When the fund sends money to charities, it’s not deductible.
This is a bit complicated and could involve fees. But it may work for you — you’ve got to figure it out or have a tax pro figure it out for you.
So there you are. I think having to leap through all these hoops to get a formerly simply obtainable deduction for charitable contributions is ridiculous. But we’ve got to deal with what we’ve got, not with what we want. Such is life.