DH CPA, PLLC

14/11/2019

American taxpayers gave over $420 billion to charity last year. Those gifts (which ranged from large corporate donations to small donor contributions of less than $25) support a wide-range of non-profit organizations that include non-profit schools, churches, synagogues, mosques, large nationally known non-profits, and small soup kitchens.

Supporting a charity is a great thing to do, and it’s nice that it comes with tax benefits as well. But did you know that the timing of a charitable gift can potentially save you money? This is especially true now after the passage of the Tax Cuts and Jobs Act of 2017, which, among other things, doubled the standard deduction.

Each year you have a choice between itemizing your deductions (ex: charitable gifts, $10k of state and local taxes, mortgage interest, etc.) or taking the standard deduction, and in virtually every return it makes sense to take the larger of the two. The standard deduction for most individuals is $12,200, for married couples and qualifying widow(er)’s it’s $24,400 and for individuals filing as Head of Household, it’s $18,350.

This means practically that if your itemized deductions total less than your standard deduction, you don’t actually deduct charitable gifts (or other itemized deductions). If they total more than the standard deduction, you’d itemize.

I’ll give an example of this principal in action. Imagine a hypothetical taxpayer named Edgar. Edgar gives $10,000 to a 501(c)3 charity every year. He doesn’t own a home (so no mortgage interest) and he lives in the recently formed US state of Taxhavenia, which doesn’t have an income tax, sales tax, or any property taxes. The state makes all of its money from parking enforcement, which is ruthlessly efficient and levies fines that could bankrupt a small company.

Since Edgar is single, his standard deduction is $12,200. His $10,000 in itemized deductions are less than the standard deduction, so each year he ends up taking the standard deduction. For 2019 and 2020, he would be deducting a total of $24,400 ($12,200 x 2 years).

But what if Edgar gave both of his $10k gifts in 2019 instead (or saved them both for 2020)? In that case, he’d deduct $20,000 in one year, and $12,200 in the other. In the year that he gave $0, he’d still get to take the standard deduction, but in the year that he gave the double gift, he’d itemize.

Just by changing the timing of one of the gifts, Edgar got to deduct an additional $7,800. That might save him $2-3k in taxes in the end.

This strategy doesn’t work for all taxpayers but if you want to know if it would work for you, feel free to contact me and I’ll find out for you. The worst case scenario is that you save nothing, but the best case scenario is that you could save thousands in taxes, all while continuing to give to your favorite charity.

14/11/2019

https://www.dhcpapllc.com/when-should-you-give-to-charity/

Did you know that the timing of a charitable gift can potentially save you money?

25/09/2019

Why can’t taxes be simple?

Taxes aren’t simple, all of us know that. And yet it seems that every election season, politicians offer to make them simple (my personal favorite is the pledge to make the tax return fit on a post-card). On the surface, this seems like a great idea. As a culture, we don’t like complexity or nuance, we want everything (especially finances) to be clean and transparent and ideally, to fit in a tweet. So why can’t we have a simple tax system?

The main reason that this is difficult to do is that if we were to simplify our taxes, we’d most likely end up with a huge tax increase. Most of the complexity on the 1040 comes from items that are designed to reduce your tax bill. If you try to fit the 1040 on a post-card, you’re going to have to eliminate a lot of tax benefits that people like.

Take a look at Schedule 1, for instance. There are 20 lines here that have data (others are just for subtotals or reserved lines). Five of those lines might cause your taxes to go up or down (Schedules C, D, E, F, and form 4797), while four would cause your taxes to go up (ex: tax refunds from last year, unemployment income). The other eleven are all items that lower your taxes (things like the HSA deduction, IRA contributions, Alimony paid, etc.).

Schedule 1 isn’t unique, either. In a medium to high complexity return, probably 70%+ of the lines on the return that have to be calculated or investigated are for deductions or credits.

We saw this problem first-hand two years ago when the Tax Cut and Jobs Act of 2017 (TCJA) was passed. The intent of this legislation was to simplify and lower taxes, but that’s really hard to do when 70% of the complexity comes from things that cause taxes to be lower (it would be a lot easier to make taxes simpler and higher).

One solution would be to lower the tax rates and eliminate many of the deductions. This is also really hard to do. Virtually every taxpayer has a deduction or credit that they really like, creating a built-in constituency to defend every line on the 1040.

Ultimately, we can probably have a simple tax code, or low taxes, but not both.

25/09/2019

https://www.dhcpapllc.com/why-cant-taxes-be-simple/

Taxes aren’t simple, all of us know that. And yet it seems that every election season, politicians offer to make them simple (my personal favorite is the pledge to make the tax return fit on a post-card). On the surface, this seems like a great idea. As a culture, we don’t like complexity or nua...

18/07/2019

This past tax season, many taxpayers were surprised with worse-than-expected results (smaller refunds, or bigger balances due to the IRS). This was an especially unwelcome surprise because due to the Tax Cut and Jobs Act of 2017, many were expecting to receive more money back. What happened?

It’s important to remember that there are two elements that make up your refund: the amount of your taxes, and the amount that you sent to the IRS during the year (usually through withholding). If the amount of your taxes is lower than the amount that you had withheld, you get a refund. If it was higher, then you owe them money. For most taxpayers, their taxes did go down, but in many cases their withholding went down even more. This was a shock to many three months ago when they filed.

Did your taxes go down or did they go up? Ultimately the best way to determine that is to compare your 2017 and 2018 returns. Contact me today and I’m happy to take a free look at your return to determine what happened.

09/03/2017

Tax Tip: Have you ever finished your taxes and wound up receiving a smaller refund (or a larger bill) than you wanted? Depending on your situation, you might be able to make a prior-year contribution into a traditional Individual Retirement Account (IRA) and lower your 2016 bill even though the year is technically over.

https://dhcpapllc.wordpress.com/2017/02/25/first-blog-post

This is the excerpt for your very first post.

21/01/2017

The IRS is going to start processing personal tax returns in just a few days, so the sooner that we start your tax return, the sooner you can find out if you're getting a refund.