Year End Tax Planning—Even Congress Doesn’t Know

While our elected officials are using their time to debate headline grabbing political issues, they have continued to leave taxpayers guessing about whether some of the tax benefits that had been offered in prior years will again be available this year. Not knowing means not being able to plan. There are about 50 tax provisions that have expired and that are being considered (or perhaps ignored) by Congress. Will some or all be extended for another year or two? Will they be made permanent? Will they just stay expired and fade away?

There are two that are of particular interest to donors:

IRA Charitable Rollover

  • The IRA Charitable Rollover is the provision that could benefit donors who are over 70 ½ years of age (the age at which they must start the process of annually withdrawing funds from IRAs)
  • Under the now-expired provision, a donor may direct the IRA administrator to pay RIT or other qualified charitable organizations directly from the IRA (but not a 401K) without having that payment being taxed first to the donor. Although the donor would not get an income tax deduction, the fact that the IRA distribution is not included in the donor's income at all is more beneficial.

Deductibility of state sales taxes

  • Taxpayers are given a choice when filing an income tax return: they can claim a flat “standard” deduction ($6,300 for a single person; $12,600 for a married couple) even if their actual expenses are less; or, they can choose to itemize their qualifying expenses (charitable contributions, mortgage interest, real estate taxes, state income taxes, and some others).
    • For those who live and work in states, like NY, that have their own income tax, the ability to deduct those from the federal tax is very attractive.
    • But, there are states that have NO income tax (Florida, Texas, Washington, Nevada, and about five others). Those states make up lost tax revenues via sales and real estate taxes. And SALES taxes weren't deductible until a few years ago when temporary provisions were put in place. Those provisions have also expired.

For more information on year-end tax planning and your charitable giving, please email or call Hal Burrall at 585.475.3106.