As the holiday season rapidly approaches, many of us are considering bundled gift ideas for our loved ones. During the upcoming sales events, people often shop at large stores to take advantage of the best deals and ‘bundle’ their purchases to save money on gifts. Like these savings on gift giving, one can also benefit from “bundling” their deductions even if they are using the standard deduction.
The bundling strategy combines itemized deductions that are typically made annually into the same year to maximize tax benefits. The two itemized deductions that maximize this strategy are from charitable gifting and property taxes. In 2017, the Tax Cuts and Jobs Act limited the amount of property taxes deducted to $10,000. Unfortunately, this limits the strategy compared to previous years when there was no cap on the amount that could be deducted. In Texas, property taxes for the current year are due by January 31st of the following year. This allows for doubling up on property taxes by paying the previous year’s tax in January and the current year’s tax in December.
Similarly, in the case of charitable gifting, you can earmark the intended amount for a gift and double the contribution in the same year you pay the doubled property tax. If you don’t want to double the donation to a charity in a single year, you can use what is called a Donor Advised Fund (DAF). A DAF provides a tax deduction in the contribution year, but the charitable gift can be made at any time.
As the holiday season encourages generosity in gift-giving, consider bundling your taxes to not only optimize savings but also to adopt a strategic approach for maximizing tax benefits. Every individual’s situation varies, so it’s advisable to contact your advisor to determine if this strategy is suitable for your tax circumstances.