For others, it could mean figuring out how many family members they can claim as dependents. But for many taxpayers, it means getting the most out of their everyday life in order to get the biggest possible tax refund in 2019.
One of the most popular ways to do this is to donate money or goods to charity. Even though the Tax Cuts and Jobs Act of 2017 (also known as tax reform) has changed many taxpayers’ ability to itemize deductions because of the nearly double standard deduction, you can still give to charity and get a tax break for doing so.
Of course, one of the most popular ways to get a deduction by donating to charity is by giving cash. Cash contributions can include:
- Payroll deduction
- Automatic bank or credit card debits to a charitable organization
- Tithing to a church, synagogue, or other place of worship
- Giving to organizations that collect money outside shopping areas (make sure you write a check so you have proof of this!)
- Even donating to an online organization, or donating via your phone
You can deduct your cash contributions that are less than 60% of your Adjusted Gross Income (AGI) – that’s a 10% increase from last year, due to tax reform.
Another popular means of giving to charity is donating used items in good condition. You can claim the fair market value for items you donate. These could be articles of clothing, toys, furniture – whatever you feel like, as long as it’s in good condition and someone else will be able to make use of it. Clean out your drawers and closets; get those old toys out of your basement; drag those old bikes out of the garage. If these items are in good condition, their value can be deducted on your tax return when you donate them to a charitable organization.
If you’re age 70½ or older, you have an opportunity to make a big charitable contribution because you’re required to “draw down” your IRA, if you have one. To do this, you need to combine the values of all the traditional IRAs you have money in, then check the life insurance tables to see how much you need to withdraw from your IRA(s) for the year. If you make your contribution by having your plan administrator directly transfer the money to a charity of your choice, your contribution up to $100,000 of your transfer will be tax-free. If you make this contribution, you can’t claim it as part of itemized deductions. If you can’t itemize deductions without this contribution, you can claim your standard deduction. If you can do this, it’s essentially a win-win for you. It’s also important to note that money distributed from a pension fund or Roth account isn’t subject to these rules.
As the year winds down and people get into the holiday spirit, don’t forget to make the most of your 2018 tax return – and give where you can.