It may feel like it’s way too early to be thinking about taxes. After all, you’re still trying to make sure you’ve finished your holiday shopping with meaningful gifts for loved ones that won’t end up in the back of the closet by New Year’s Day. But April will be here before you know it and there are some actions you can take now to maximize your return in the spring—and possibly make up for any holiday overindulgences committed now.
The first thing to know about your upcoming tax filing is that things will be a little different this year. The Tax Cuts and Jobs Act (TCJA) that was passed in December of 2017 went into effect at the beginning of this year, meaning this April will be the first time we see the effects of the bill’s changes. One of the most significant changes is the increased standard deduction: now $12,000 for single filers and $24,000 for those who are married and filing jointly. Another change resulting from the new law is the elimination of certain itemized deductions.
If you need a refresher on what the standard and itemized deductions even are, NerdWallet has a great guide to help break down some of the details but the TL;DR of it is that tax deductions decrease your taxable income and help maximize your return. The majority of filers already use the standard deduction and that’s expected to increase to almost 90 percent of taxpayers this coming year. It seems simple enough: take the straightforward lump sum deduction and never have to worry about tracking down receipts or keeping a spreadsheet of your expenses throughout the year. This, after all, was one of the goals of the TJCA: make filing taxes simpler. But if you take the easy way out, you could be shortchanging yourself.
To make itemized deductions work for you, you’ll need to exceed the amount offered by the standard deduction (between $12,000 and $24,000 based on your filing status). That might sound like a lot, but if you look at where your money is going, you might be surprised to find where deductions pop up. Things like student loan or mortgage interest, real estate taxes, medical expenses not covered by insurance, retirement fund and HSA contributions are all potential sources for itemized deductions. If you own your own business or freelance and work from home, costs associated with your home office are also sources of potential deductions. Add all of these up, and you could find yourself scraping close to that standard deduction.
But what if you find yourself falling a little, or a lot, short of the $12,000-$24,000 threshold? That’s where your generosity comes in. During last year’s tax season, we gave you a quick overview of how charitable donation deductibles work and how Pinkaloo can help make the process simple. Now, we’re going to help you maximize your donations and deductions with something called bundling.
Bundling essentially means pre-paying your future planned donations. So if you usually give $4,000 in a year, you could bundle 2018 and 2019’s donations into a single year and give $8,000 in a single year. Bundling increases the total amount donated in a tax year, thereby increasing your eligible deduction and making it more likely you’ll exceed the threshold for that standard donation. Add this doubled-up donation on top of other itemized deductions and it starts to feel a lot more manageable.
To make bundling work for you, take a look at what expenses you’re already paying that qualify for deductions and calculate how close you are to the threshold for your filing status. Next, look at what you’ve already donated in 2018 and what you can realistically contribute before the end of the year (don’t forget to include donations on behalf of friends and family during the holidays!). If the threshold for your filing status is within reach, bundle up and deposit those funds into your Pinkaloo Modern Giving account! If the threshold is out of reach this year, build it into your giving plans for 2019. Alternating between the standard deduction one year and bundling the next could be a good option for you to maximize your returns.
Pinkaloo’s Modern Giving accounts can make bundling a snap. Simply deposit funds into your account by the end of the year and get your tax receipt immediately. You can reach your giving goal for the year and be fully prepared for tax season with all your documents at your fingertips. And best of all, is that you don’t need to choose which charities to distribute those funds to now, but can have charitable dollars available to distribute during 2019. Now sit back and enjoy the holidays, knowing you’ve locked in your max return for 2018.
Pinkaloo Technologies LLC does not provide tax or legal advice. Each of us have unique circumstances and we suggest that you work with a qualified tax advisor for your specific situation.