A blue-state strat­egy to sur­vive the Repub­li­can tax over­haul next sea­son

The Washington Post - - POWER POST - AL­LAN SLOAN

Most of the peo­ple who are deal­ing with in­come tax stuff these days are fin­ish­ing up their 2017 re­turns. But in true jour­nal­is­tic fash­ion — or at least, what’s sup­posed to be true jour­nal­is­tic fash­ion — I’m look­ing ahead. To my 2018 taxes. And pos­si­bly your 2018 taxes, if, like me, you live in a state tar­geted by last year’s tax cut bill.

I’m ac­tu­ally fol­low­ing the strat­egy that I sug­gested in Jan­uary about how some of us who live in high-tax states with high home val­ues can claw back some of the tax de­duc­tions that Pres­i­dent Trump and con­gres­sional Repub­li­cans took from us to help pay for cor­po­rate tax cuts and spe­cial breaks they gave to real es­tate peo­ple such as . . . Trump.

Let me show you how I’m ap­ply­ing the the­ory of what I dis­cussed in Jan­uary. And I’ll also tell you how you might be able to deduct some or all of your char­i­ta­ble con­tri­bu­tions if you’re less than 701/ years old, the

2 min­i­mum age at which you can do what I’m do­ing.

Here’s what I’m do­ing. In­stead of send­ing per­sonal checks to char­i­ties, I send them checks drawn on one of my Van­guard re­tire­ment ac­counts. I have to take fed­er­ally tax­able “re­quired min­i­mum dis­tri­bu­tions” from my re­tire­ment ac­counts be­cause I’m older than 701/2.

But by hav­ing Van­guard send me a check drawn on my re­tire­ment ac­count but made out to a char­ity, I re­duce the fed­er­ally tax­able por­tion of my re­quired dis­tri­bu­tions.

This means that I’m de­duct­ing the do­na­tions in­di­rectly — but ef­fec­tively. It’s an­noy­ing, and it gen­er­ates a lot of pa­per, in­clud­ing sav­ing the state­ments I get with each check. But it’s go­ing to save me money come next tax sea­son.

When I could deduct state and lo­cal in­come and real es­tate taxes, which ran about $30,000 last year, it made sense for my wife and me to item­ize de­duc­tions. But with a $10,000 max­i­mum de­duc­tion for state and lo­cal taxes, this year, it’s Stan­dard De­duc­tion City for us, the first time I can re­mem­ber that be­ing the case.

If you’re in a sit­u­a­tion like mine, it seems that my sug­ges­tion — please note that it’s a sug­ges­tion, as I don’t have stand­ing to give tax ad­vice — seems like a no-brainer. I get to take the stan­dard de­duc­tion ($26,600 for my wife and me be­cause of our age) and I get to deduct our con­tri­bu­tions in­di­rectly.

It’s an­noy­ing and cum­ber­some to have to leap through hoops rather than just write a check. But I’m get­ting used to it — and things have ac­tu­ally got­ten a bit less com­pli­cated as the year has gone on.

For my first eight 2018 con­tri­bu­tions, I had to call Van­guard, get a rep­re­sen­ta­tive on the line, tell the rep the char­ity’s name, the size of the do­na­tion, whether I wanted fed­eral in­come tax with­held (no) and whether I wanted state in­come tax with­held (yes, be­cause con­tri­bu­tions aren’t de­ductible for New Jersey in­come tax pur­poses),

I also had to lis­ten, each time, to the seem­ingly end­less dis­clo­sures that Van­guard, quite prop­erly, re­quires the rep to re­cite.

But the ninth time around, ear­lier this month, I could fill out an on­line form rather than talk with a rep. I sus­pect that Van­guard’s com­peti­tors have sim­i­lar pro­grams in place or soon will.

For any­one like me who’s tak­ing re­quired dis­tri­bu­tions from re­tire­ment ac­counts and who ex­pects to take the stan­dard de­duc­tion in 2018, this strat­egy is a no-brainer. (It’s not my orig­i­nal idea, by the way. A friend told me about this re­tire­ment-in­come do­na­tion loop­hole, and I checked it out with my ac­coun­tant be­fore I wrote my ad­vice col­umn 10 weeks ago.) But what if you’re not 701/ and

2 don’t ex­pect to get full value (or maybe any value) for your char­i­ta­ble con­tri­bu­tions this year? You might be able to get a break by lump­ing sev­eral years of de­duc­tions to­gether and us­ing them to fund a “donor-ad­vised fund.”

That way, you might end up with item­ized de­duc­tions high enough above your stan­dard de­duc­tion to make item­iz­ing your do­na­tions worth­while.

You can gen­er­ally set up a donor fund fairly sim­ply and quickly by us­ing an in­vest­ment firm with which you’re do­ing busi­ness or by us­ing a com­mu­nity fund.

Un­like a reg­u­lar con­tri­bu­tion, which is de­ductible when you send money to the char­ity, the money you put into a donor fund is de­ductible when you write the check to the fund. When the fund sends money to char­i­ties, it’s not de­ductible.

This is a bit com­pli­cated and could in­volve fees. But it may work for you — you’ve got to fig­ure it out or have a tax pro fig­ure it out for you.

So there you are. I think hav­ing to leap through all these hoops to get a for­merly sim­ply ob­tain­able de­duc­tion for char­i­ta­ble con­tri­bu­tions is ridicu­lous. But we’ve got to deal with what we’ve got, not with what we want. Such is life.

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