Part 2

Combining your deductions

The TCJA substantially increased the standard deduction for 2019 to $24,400 for married couples and $12,200 for single filers. With many of the previously popular itemized deductions eliminated or limited, you may find it challenging to claim your itemized deductions.

Grouping those deductions may make it easier. Basically this means moving deductions into this tax year to exceed the standard deduction and claim itemized deductions. By grouping deductions in one year and taking the standard deduction in an adjacent year, the total deductions over a two year period could be increased. You could, for example, group your charitable contributions if it means you can get a tax break for one tax year.

If you normally make your donations at the end of the year, you can group donations in alternative years — say, donate in January and December of 2020 and January and December of 2022. You can make multiple contributions in a single year, accelerating the deduction. Thereafter, you can decide when the funds are distributed to the charity. If, for instance, your objective is to give annually in equal increments, doing so will allow your chosen charities to receive a reliable stream of yearly donations (something that’s critical to their financial stability), and you can deduct the total amount in a single tax year. If you donate appreciated assets that you’ve held for more than one year to a nonprofit, you’ll avoid long-term capital gains taxes that you’d have to pay if you sold the property and (subject to certain restrictions) also obtain a deduction for the assets’ fair market value. This tactic pays off even more if you’re subject to the 3.8% net investment income tax or the top long-term capital gains tax rate (20% for 2019). If you want to divest yourself of assets on which you have a loss, instead of donating the asset, sell it to take advantage of the loss and then donate the proceeds. 

Grouping Qualified Medical Expenses Deducting: It’s all about timing. The TCJA lowered the threshold for deducting unreimbursed medical expenses to 7.5% of adjusted gross income (AGI) for 2017 and 2018, but it bounces back to 10% of AGI for 2019. Grouping qualified medical expenses into one year could make you eligible for the deduction. 

As with income deferral and expense acceleration, you need to consider your tax bracket status when timing deductions. Itemized deductions are worth more when you’re in a higher tax bracket. If you expect to land in a higher bracket in 2020, you’ll save more by timing your deductions for that year.