Trying to Make Sense of the "Tax Cuts and Jobs Act" of December 2017

Well, they did it and we have a new tax bill signed and ready to go for our 2018 taxes. They had promised to try to simplify things, but as things often happen, the final result is not very simple at all. I have modified my online income tax deduction calculator to try to figure out the differences between the current 2017 tax structure and how it changes for 2018. The bottom line is even less households will be itemizing and most households (and corporations) will see a federal tax decrease in 2018. How the federal government will survive with such an increased deficit is another story, but most people are more concerned on how it will effect their own taxes.

With the new expanded standard deduction, one thing I have noticed is that donor advised funds can be used very effectively to take advantage of the new rules. We have an account with the Schwab Charitable Fund, and we realized our best practice was to contribute a large chunk of highly appreciated equities this year to use to make contributions in 2018. We hope to do this again in 2019 with the idea being to contribute two years of contributions every other calendar year to allow us to itemize every other year. We are still going to itemize for the 2017 tax year for sure, but for 2018 we would probably not hit $24,000 in itemized deductions to surpass the new standard deduction. So what we did this year was to contribute an extra large amount into our Schwab Charitable fund which should fully fund our regular giving for 2018. Then in 2019 we will donate another extra large chunk that would cover our charitable giving for 2019 and 2020.

Here are some of our details: Since we no longer have a mortgage on our home, most of our itemized deductions come from state taxes, property taxes and charitable giving. In 2016 our total itemized deductions added up to somewhat over $15,000. Since that was more than the $12,600 standard deduction for married filing jointly it was worth itemizing and being in the 15% federal bracket (plus 6% for Missouri) we reduced our taxes by 21% of about $3,000 or about $600 in tax savings because we itemized. Since 2017 was such a banner year in the stock market, we essentially doubled what we typically donate to the Schwab Charitable fund from our brokerage account, so I am estimating our itemized deductions for 2017 will be over $20,000, which will further reduce our taxable income for the year and give us a fatter rebate. However, in 2018 we will probably not contribute anything to the Schwab Charitable fund, but still contribute grants to charities out of it from the surplus we contributed in 2017. Without any donations to the Schwab Charitable fund, our 2018 itemized deductions will probably add up to less than $10,000 so we will just use the new hefty $24,000 standard deduction and not itemize for the first time in over two decades. However, we are hoping for a banner stock market year in 2019 when we could hopefully donate enough appreciated securities to push our itemized deductions over $24,000 so we can itemize again. See how that works? By bundling 2 or 3 years worth of typical donations into larger contributions to a donor advised fund, you can still itemize every 2 or 3 years to get the most tax benefits from charitable giving.