With the New Lower Income Tax Rates, Should I Continue to Itemize My Deductions?

Standard Deductions

Most married couples can now take the new standard deduction of $24,000 for the both of them. Most taxpayers will take the standard deduction unless you have other substantial deductible expenses in the following categories:

  • medical expenses in excess of 7.5% of your adjusted gross income;

  • interest expense on loans of less than $750,000;

  • state and local taxes up to $10,000 per year, and

  • charitable contributions that don't exceed 50% of your adjusted gross income.

If you don’t have any of these expenses to itemize, you may get a better tax break by using the standard deduction.

Donor Advised Fund

However, even if you don't have substantial medical expenses or interest expenses, you can make your qualified deductions much greater in any given year by setting up a donor advised fund (DAV).

The entire amount you place in a DAV is deductible in the year that the money is given because the money cannot be used for any purpose other than for charitable giving. You can direct to whom and when the money is paid, but you cannot get the money back. Therefore, if you set up a DAV, the entire amount is deductible in the year it is given, even if you pay it out to charitable organizations over several years.

Some Trustees of a DAV may have a minimum amount that you must put in in order to set up and administer the fund (such as $50,000). If you maximize your itemized deductions in one year, you can then pay the money (that you would have given to your church, the Red Cross, etc., anyway) over several other years when you take the standard deduction. This is just one of the many tax strategies that affect what is left in your estate when you pass away.

Grayson P. Van Horn is an attorney at law serving Oklahoma residents and property owners. 

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