Matt Blocki from EWA offers a financial planning tip for 2023. He discusses the importance of being aware of the standard deduction and its impact on tax planning. Matt explains that for married couples filing jointly, they can either take the standard deduction, which is $27,700 for 2023, or choose to itemize deductions. He provides an example where itemizing may not be beneficial for some families due to limitations on deductions like state and local taxes and mortgage interest.
However, he suggests a strategy for those who want to support charitable causes and get a tax benefit. By batching charitable contributions into a donor-advised fund in one year and using the standard deduction in other years, individuals can maximize their tax benefits while supporting their favorite charities. This strategy ensures that every dollar contributed to charity provides a tax benefit, rather than receiving no tax benefit in years when itemizing doesn’t make sense.
Hello, Matt Blocki with EWA. Today we are talking through ten tips for 2023 and how to maximize your financial plan. Tip number ten for maximizing your financial plan 2023 is to be aware of the standard deduction being raised for 2020 re tax planning.
So married filing jointly, you have an automatic election that you can make to take the standard deduction of 27,700. That’s option A. Option B is to itemize. Now, for most families, it’s going to make sense just to take this option or to do some significant planning to bounce back and forth between the standard deduction and then itemizing.
So itemizing can be a mix of state and local tax, what we call salt, which are now capped at 10,000 per year. This could be interest on your house, which recently was changed to 750 max. So if you have an interest, it’s only on the first 750 of the loan that you have.
And then other things could be things like charitable donations. So let’s just use an example where someone has state and local taxes of $10,000. They have a $300,000 mortgage left that has a 3% interest, that’s $9,000 and they make a charity contribution of $4,000.
So the total that they could potentially get from a tax perspective is 23,000. However, they can automatically get 27,700. So obviously they would not want to itemize because they’re going to get a higher deduction if they just elect into this.
So what does this mean? It was really nice of them to give to charity, but. And they think their interest on their mortgage is tax efficient, it’s really not. This is doing them absolutely no good. However, if we were to batch this and please see our video on what we call donor advised funds.
So if they were to batch their charity so same example where they have $10,000 of salt, $9,000 of interest on their mortgage, but then they give, let’s say, five years all at once into a charity that’s $39,000, which is greater than the automatic 27,700.
So in that example, we wouldn’t use the standard deduction. We would itemize that year at the 39,000. We’d use that donor advised fund to fulfill those charitable contributions for the next five years.
And then during the next four years, the four years after we did that acceleration, we would just go back to using the standard deduction. So this is how someone that does give money to charity that’s getting absolutely zero tax benefit right now, not even realizing it, can batch their use of the itemized deductions all at once and then get the standard deduction in the following years and then every couple of years go back and batch it.
So there’s actually tax benefits on every dollar that gets contributed to your charitable endeavors.
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