taxes

A Charitable Strategy for Residents of High-Tax States

If you live in high-tax state, you may be asking what can you do to save after the new tax overhaul? Doubling up on your charitable contributions every other year to alternate your ability to itemize could make sense.

So by now you have surely heard that The Tax Cuts & Jobs Act Of 2017 has passed and major changes are on the way. Unfortunately, if you live in a high-income-tax state (like New York or New Jersey) you will probably be paying more in taxes. So, what can you do?

The new $10,000 cap on state and local income tax and property tax deductions will be especially painful. What’s even tougher is that this limit is on the combined total of property and income taxes, not $10,000 each. Also, the $10,000 limit is for both individuals and married couples (it’s not $20,000 for a married couple).

While the dollar amount of state and local income tax and property tax deductions that can be taken drops, the standard deduction rises (standard deduction will be $12,000 for individuals and $24,000 for married couples). So, you will need to now focus on the timing of your itemized deductions in order to maximize their effectiveness. In some cases it may make sense to itemize one year, then take the standard deduction the next, and switch back the following year. This could be accomplished by doubling on charitable donations in a calendar year.

Let’s take for example a married couple who lives in and owns a home in New York and donates $10,000 every January to charity. In the past, that amount, combined with their local income and property tax deductions, made it easy for them to eclipse the old standard deduction.

Now, with the $10,000 cap, itemizing may not be a possibility. However, if they decided to move that January 2019 planned contribution to December 2018, they would now have enough where itemizing made sense for 2018. Then in 2019 they could take the standard deduction, because they would not be making a charitable contribution in the calendar year. They would then continue to double up on their charitable giving in 2020 to once again itemize.

It’s nice to know that doing good for others with your charitable donations can also possibly do some good for your own bottom line. And it’s just one example of a strategy to keep your taxes in check in the new tax world.

About the Author

Paul V. Sydlansky, CFP

Founder, Lake Road Advisors, LLC

Paul Sydlansky, founder of Lake Road Advisors LLC, has worked in the financial services industry for over 20 years. Prior to founding Lake Road Advisors, Paul worked as relationship manager for a Registered Investment Adviser. Previously, Paul worked at Morgan Stanley in New York City for 13 years. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN). In 2018 he was named to Investopedia's Top 100 Financial Advisors list.

Most Popular

12 Costs of Owning a Cat
how to save money

12 Costs of Owning a Cat

Housecats may be known for their aloofness and low-maintenance attitude, but they're not cheap. Here's what you can expect to spend if you plan on ado…
October 16, 2020
26 Things Home Buyers Will Hate About Your House
real estate

26 Things Home Buyers Will Hate About Your House

As a home seller, you don't want to let the small -- or big -- fixes around your house that have added up over the years sabotage your bottom line dur…
October 16, 2020
11 Home Features Today's Buyers Want Most
home

11 Home Features Today's Buyers Want Most

Thinking about selling your house? Here are several home features potential buyers are coveting right now.
October 16, 2020

Recommended

Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

There's little doubt that, if elected, Joe Biden will try to raise taxes for some people. Will you be one of them?
October 16, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
October 15, 2020
Election 2020: States With Tax Questions on the Ballot
Politics

Election 2020: States With Tax Questions on the Ballot

On November 3, voters in 17 states will weigh in on a variety of proposed changes impacting taxes on everything from property to pot.
October 15, 2020
Considering Early Retirement? 5 Things to Know
Making Your Money Last

Considering Early Retirement? 5 Things to Know

Before you accept a buyout, do the math to see if you really can afford to retire. (We'll show you how.) Then follow up with these tried-and-true stra…
October 15, 2020