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Pre-pay charitable giving - worth it for us?

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  • Pre-pay charitable giving - worth it for us?

    Please forgive me if this topic has been reviewed ad nauseam, but I've been away from the forum (and the internet in general) for the last several days and just now getting caught up on the new tax bill.

    I ran a couple of rough numbers tonight and I'm wondering if it would make sense for us to pre-pay our charitable giving for 2018.  Not sure if we could pre-pay our property tax too (I will have to look into that).  Can someone help me?  I just plugged some numbers into a free tax calculator to see if we should expect to owe any taxes this April, and I got curious about bunching our donations into this year so I adjusted some of the numbers I plugged in to see what the result would be... wondering if I'm way off base or if this is true, and if it's a good option for us?

    My husband is the physician, I'm a SAHM and we have 4 young kids.

    2017 income - 345k.  2018 income will probably be around 360k (he's all W-2 currently)

    Maxed out 401k this year, 18k.  The practice also contributes to a profit sharing plan, which my husband became eligible for in July 2017 (but they only put half in for this year - not sure if that affects the taxes but I wanted to include it just in case). Also maxed out our HSA.

    Federal withholding - 73k

    Property taxes - 5k

    Charitable giving - 24k (we tithe 10% of our after tax income and will continue to do so next year)

    No state income tax.

    (We also paid around $12,300 in mortgage interest and $6,600 in student loan interest - not sure if those numbers are needed to answer my question so I thought I would include them.  We have about 160k left in student loans and plan to have them paid off in the next 18-20 months)

    When I plugged these rough numbers into my tax calculator, it looks like we might get a return of 4k back this year (assuming I did everything right).

    BUT, if I plugged in that we would pre-pay some of our 2018 tithing (pre-pay 24k like this year, for a total of 48k), it said our return would be around 13k this April!  Does this seem correct?  And, would this make sense for us to do??  We could bunch up itemizations this year, then take the standard deduction for 2018.  Seems like a great deal, if we would really get 9k more back this year AND be able to take the higher, standard deduction in 2018.

    We do have the cash.  We have an emergency fund of 50k in our savings account (I do know that that's far more than we need but it helps my husband sleep at night, so I've stopped fighting him on that, even though I'd love to put a bunch of it towards student loans).  Even if I can convince my husband to pre-pay SOME tithing (maybe 10k), it could help us this year, but would it be worth it in that case?

    Thanks everyone!

  • #2
    to lower your tax bill for 2017, you can donate more.  you could prepay 2017 property taxes as well.

    you need to get this done in the next couple days however.

    good luck.




    • #3
      To make sure I'm understanding correctly, you don't have any state or local income tax.  If so, you will get more of a benefit than most.  I ballpark your 2017 taxes would be reduced by $7,500 and your 2018 taxes would increase by $4,700 for a net tax savings of $2,800.  The good news in either scenario is your 2018 taxes should be significantly reduced (I estimate $10,000 without including the child tax credit you will now be eligible for)

      It's really personal preference what you do.  My wife and I have decided to keep our tithing consistent, but we also pay state income taxes and will be itemizing either way so it's a little bit of a different scenario.   I have been walking through similar strategies to what you are looking at with my clients in Texas and I think it makes a lot of sense when you can prepay enough to take yourself under the standard deduction limits.

      One other small thing, your student loan interest won't be deductible under either scenario because your family makes more than the income limits.



      • #4
        Correct, no state income tax.  Thanks for the responses!


        • #5
          Yes, given your marginal tax rate, your calculation sounds about right. You might want to check out the "DAF" thread, also. You'll get a better idea of how to strategize what you're thinking, but you're doing a pretty good job all by your lonesome!
          My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
          Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


          • #6
            My main concern would be the charities themselves.  Is this money going to some big charity or to your local church?

            I'd be worried that the local school or whatever, particularly if it's a small organization, would think you're a scrooge for cutting them off in 2018 after such a generous 2017.

            And then you'll probably end up making similar donations in 2018 anyway.  Not the worst thing in the world, but a likely consequence.


            • #7
              Your question is primarily about whether you should bunch deductions, secondarily about marginal tax brackets.

              Under the new rules, you have deductions worth $41,300, and charity is $24k of that; without charity you only have $17,300 of deductions, which is under the new standard deduction for a married couple of $24,400. Therefore it behooves you to move 2018’s charity of $24k to 2017. This will increase your tax benefit this year by 33% (your marginal rate) multiplied by the additional $24k deduction, or $8000 (minus any Pease limits or AMT implications). Next year you will file using the standard deduction, so you will lose out on a tax benefit of your marginal rate of 32% multiplied by the difference between $24,400 and what you would have itemized ($41,300), for a net reduction of (0.32)($16,900) = $5408. The net benefit to you is $8000-$5408 = $2592.

              This excludes the impact of adjustments due to Pease and AMT, which are likely small. But you get the drift: it’s worth a couple thousand bucks to you to bunch this year.

              A DAF is probably a good way to go especially if you have some appreciated stock or mutual fund sitting around in a place like Fidelity or Schwab, where you can open and fund a DAF within 5 minutes.


              • #8
                Goodlife: Thanks for your post! I am in a similar situation to you. After reading your post I called our CPA (and managed to reach him at the end of the day). He advised to pre-pay the giving for the year as well. So a few phone calls later, it's done. Wouldn't have figured this out without the post.


                • #9
                  WCICON24 EarlyBird
                  DAF is a good way to even out distributions instead of bulk donations -- something that Craigy alludes to which is unfortunately too common.

                  Since <10,000 on the SALT since only property tax, not hitting that limit.

                  Careful on the AMT with all the deductions.