This has probably been answered several times but a cursory search didn’t answer the question:
It’s time to start planning taxes and I may have some significant deductions this year so I want to check. (I don’t usually have anything but standard deduction). Recommendations on software to use? I’ve used TurboTax for many years, so should I just use last years and plug in new numbers or what?
I haven’t used TurboTax for many years, but IIRC, there should be a planning module in last year’s software that you can use to plan for taxes this year.
AJ
Goofy before you get into the weeds, I suggest a little with Google. In addition to the larger standard deduction, how an itemized deduction is calculated/allowed changed. For example Healthcare - your deduction is only for Healthcare expense greater than 7.5% of of adjusted gross income. The Misc deduction begins at 2% of adjusted gross income.
H&R Block’s tax program is usually available before Thanksgiving. That usually has this years numbers in it and works well for planning before the end of the tax year. I already posted this years pre-market download of the basic program for $30.
They always caution that late changes in tax law may have to be in later updates but they usually do the best they can. Major update is usually in January.
Yes. I will have well over that in (mostly) dental and some additional medical, for the first time. I will have other significant deductions and credits as well, which is why I want to see how much income I can take (IRA conversion) to zero out any tax obligation. Soon Mrs. Goofy will hit RMDs as well, so it’s time to pay attention, which I have been woefully lax about in the past few years.
If you are inclined to be charitable, this could be a good year to initiate (or add to) a DAF. You can donate highly appreciated assets and get a charitable deduction based on the current price without having to realize any income on your tax return.
QCDs can be used to offset RMD requirements, again without having to have any income hit your tax return.
AJ
Do the numbers come out any differently than withdrawing the RMD as taxable, paying the charity out of those funds, then claiming the charitable deduction? This assumes itemizing, of course. I can see the advantage if it allows one to not itemize.
Yes, because a charitable deduction has to overcome the standard deduction for any of it to be deductible.
With a QCD never even hitting your tax return as income, you don’t have to worry that only the amount that is over the standard deduction will reduce your income.
Yes, that’s the advantage for most people. Since standard deductions are so large now that very few people itemize, it’s a way for non-itemizers to get a tax advantage by making charitable deductions.
But even for itemizers, there can be an advantage. If you’re an itemizer who is trying to keep your AGI down to stay under IRMAA thresholds, it can be more advantageous to do a QCD because the QCD income is never counted in your AGI. IRMAA is based on AGI, and deductions aren’t counted until you figure taxable income, so deductions don’t reduce your AGI for IRMAA.
AJ
Thanks, AJ. I generally do an IRA to ROTH rollover near the end of the year, approaching the top of the 24% bracket. This not only hits me in IRMA, but raises my state (CT) income tax - and so the deduction for it - past the standard deduction, once mortgage interest and property taxes are piled on. 2025 gets more interesting, as my RMD starts, and is way higher than what I have been withdrawing to live on.
Since your RMD starts in 2025 (age 73), you are currently eligible to do a QCD in 2024. The age for being able to do QCDs remained at 70 1/2, even though the RMD age was increased.
AJ