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Listed below are three strategic mid-year tax planning tips.


Itemizing Strategically Can Be A Great Strategy:


In 2018, for the first time, the Tax Cut and Jobs Act (TCJA) nearly doubled the standard deduction to $12,000.00 for single filers and $24,000.00 for married couples filing jointly.  The number of taxpayers eligible to itemize was slashed by 60.0% by the TCJA.  Now, only about 12.0% of taxpayers are still eligible to itemize expenses for medical, dental, home-mortgage and other loan interest, charitable contributions and miscellaneous fees, including those for tax preparation and investment advice.  The new thinking from those that advise on income tax planning matters is that individuals can plan to bunch deductions once every two or three years.  Strategically itemizing may substantially decrease an individual’s income tax bill at least for one year.  Bunching itemized deductions in 2019 may boost an income taxpayer’s total itemized deductions above their standard deduction.  If not, they may want to plan on bunching and itemizing those deductions in 2020.  The near-doubling of the standard deduction was intended to simplify federal taxation but has actually complicated it.  It is estimated that approximately 20 million taxpayers are no longer eligible to itemize.  Instead, many of those income taxpayers must now strategically plan to itemize every two or three years instead of on a year-to-year basis.


Donor Advised Funds: 


One of the ways an individual can boost their deductions in 2019 is by giving to charity.  One of the easiest ways to give to a charity is through a Donor Advised Fund.  With a Donor Advised Fund, an individual can split gifts among different charities.  The taxpayer can contribute securities (preferably appreciated securities) or cash and claim the deduction that same tax year.  For instance, if an individual knows they will be taking a taxable capital gain on an investment before the end of 2019, it’s wise to consider donating those appreciated securities to a Donor Advised Fund.  The income taxpayer would then receive an income tax deduction on the amount they contribute and avoid paying a capital gains tax.  In addition, the charity receives the full amount of the gift (no income taxes would be paid by the Donor Advised Fund).  If one were to donate cash or securities to a Donor Advised Fund in 2019, they can take a deduction on their 2019 return, but wait to grant the money to a charity until 2020, or perhaps in 2021, but can still take the deduction in 2019. 


For Those With Large IRAs: 


If an income taxpayer lives in a state with an income tax, they might want to consider setting up a non-grantor trust in a state with no income tax.  Why?  For example, if they have a $1,000,000.00 IRA, placing it in a non-grantor trust in a state with no income tax avoids state income taxes.  This could result in big income tax savings.  At the income taxpayer’s death, under the proposed SECURE Act bill, which is expected to be enacted before the end of 2019, their heirs would be required to distribute the IRA that is left to them within 10 years.  Placing one’s IRA in a non-grantor trust in a state with no income tax allows ones’ beneficiaries to avoid paying state income tax on the distributions from the IRA.  To be clear, capital appreciation and dividend income on the IRA can be free of state income tax by applying this strategy!  A recent U.S. Supreme Court decision upheld the legal concept behind this strategy and out-of-state trusts are likely a device that retirees will hear about in the mainstream financial press in the months ahead.


Please note that the reader should discuss all strategies stated above with their accountant and/or legal advisor before implementing any of the above listed strategies.


Legend Financial Advisors, Inc.® (Legend) and/or its advisors are not income tax or estate planning advisors (attorney) nor a legal advisor (attorney).  It is Legend’s intention to merely present ideas and strategies to readers to discuss the concepts with their own tax and legal advisors or in conjunction with Legend’s advisors.

©2019 Legend Financial Advisors, Inc.®. All rights reserved.