Congratulations, we all benefitted!
Effective tax rates* declined significantly across all income levels. For a typical family earning between $250,000 and $1 million, the effective tax rate declined to 20.5% from 23.3%. That is worth about $14,000 to a family earning $500,000 … or enough to buy 280 bottles of Veuve Clicquot Brut.
Don’t stop reading. There’s an even more important revelation.
Perhaps the biggest change between 2017 and 2018 is the decline in taxpayers reporting itemized deductions. Previously, most taxpayers with income between $100,000 and $1 million itemized their deductions. Last year that percentage plummeted to just 27%-54% of those taxpayers. Even in the bracket above $1 million, people itemizing deductions dropped from 91% to 71%.
The “Big 3” of itemized deductions include charitable donations, state and local taxes (aka SALT) and mortgage interest. With the new $10,000 limit on SALT deductions, fewer families are itemizing and more are taking the standard deduction.
What Does It Mean for You? When you make a charitable contribution, you are probably thinking: Ka-ching, a tax write-off! But this is only true if you still itemize. With the standard deduction, individuals likely receive no tax benefit from their charitable gifts of cash.
But don’t be less charitable …
be smarter about how you give to charity.
Two of the simplest ways to get more bang from your charitable buck are: 1) to donate shares of appreciated stock; and 2) to donate through a donor-advised fund or private charitable foundation. These strategies are considered best practices among wealthy families, so make it yours, too.
For more information about how these best practices could help your family, contact us at Conifer Bay Capital and talk with your tax professional.
* Your “effective tax rate” is your Total Tax (from line 63 of your return) divided by your Taxable Income (line 43 of your return).