I have been thinking lately about how to minimize taxes for the ordinary person (i.e. not a business owner). And one of my crowning light bulbs is the topic of this week's post. The idea is advance giving. If you give multiple years worth of charity in one year you significantly improve your benefits.
So here is how it works... Instead of giving $10,000 to charitable organizations each year for the next 3 years, give $30,000 to charity in one year with a letter that informs them that this will be advance giving for the next 3 years. So based on filing for an individual. If you choose itemized deductions and donate $10,000 each year for 3 years, at the end of the the third you you will have realized $30,000 in deductions over the course of the 3 years. However, if you decide to give $30,000 in year one and decide to take the $5,700 standard deduction in years 2 and 3, you end up having a total deduction over the course of 3 years of $41,400. That means that advanced giving would give you $11,400 more in deductions. And even better than that number is that fact that in year 1 you will most likely put yourself in an extremely low income tax bracket, meaning that, for the majority of people, instead of 25% you would be taxed at 15%. That's Huge! Or even moving yourself from 28% to 25% is a huge win!
Now I have went back and forth on this idea...
You have huge benefits in your taxation
You end up with more money in your pocket
You have to plan/budget on a very large scale
You aren't adjusting you giving on a yearly basis
It's a very large up front cost
I think it's worth it if your life allows it. I hate taxes more than anyone, so I love finding anyway to limit tax liabilities. I'm not an accountant, but I spoke to one in a bar last weekend and she said this could work. And if a slightly inebriated tax accountant is wrong, I don't know what I can believe. I hope this finds you well, and as always, if you have any questions don't hesitate to ask!