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Timing Your Charitable Giving
by Jack Kirkland, CPA
Most people probably don’t give to charities just for tax purposes, but being a CPA it’s in my blood to at least consider it. After all, less taxes equals more giving, right? Following is a tax planning thought if your itemized deductions are right on the bubble of being able to get the tax break.
Johnny and Janie are a married couple under age 65. Accordingly, their standard deduction as a married couple for 2016 is $12,600. Their house is paid off and they don’t have any medical deductions. For 2016, the property taxes on their home are $ 3,500, and they make annual charitable donations in December of each year of $ 7,500 for a total of $ 11,000.00 in itemized deductions. Since this amount is less than the $ 12,600 standard deduction, they get no real tax break from their donations.
But, what if they were to time their donations to double up every other year? So, they postpone paying their 2016 property taxes until January, 2017 and they make their annual December donation in January, 2017. Then in December of 2017, they pay the 2017 property taxes and make their annual donation. Now they have doubled their 2017 itemized deductions to $22,000. If they’re in the 25% tax bracket, they just saved about $2,350.
A couple of other facts about contributions. Contributions are deductible in the year they are made. Thus, donations charged to a credit card before the end of 2016 count for 2016. This is true even if the credit card bill isn't paid until 2017. Also, checks count for 2016 as long as they are mailed in 2016.
If you’d like to further discuss this article or have other questions regarding charitable giving, please feel free to contact any of our tax professionals at RPC.