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Smart Giving Strategy: Charitable Bunching

Date: September 28, 2018

Smart Giving Strategy: Charitable Bunching

For many generous individuals and families, charitable giving will look much different this year because of the new tax law.

Under the new tax law, the standard deduction is now nearly double –$12,000 for individuals and $24,000 for married couples– making it harder for people to itemize on their tax return and benefit from the charitable income tax deduction.

One solution: Charitable Bunching with a Donor Advised Fund

Charitable Bunching
Bunching your charitable donations has the potential to maximize your tax savings. When asked to explain the tax strategy simply, a local professional advisor had this to say:

“If you are charitably inclined, but are concerned that itemized deductions won’t be sufficient to exceed the new higher levels for the standard deduction, you may wish to bunch your donations by making a large single-year gift equal to the total amount of gifts you would have made over several years.”

Darrell Wright, CFP
Wealth Advisor
Wright LaHaie Wealth Advisors
Raymond James

Charitable Bunching with a Donor Advised Fund
Bunching multiple years’ worth of donations into one calendar year and into a Donor Advised Fund through Stark Community Foundation would allow you to:

  1. Contribute virtually any asset (appreciated securities, mutual funds, etc.)
  2. Itemize your tax deductions for the full amount contributed and receive the immediate, maximum tax benefits
  3. Manage your giving from one account and have the flexibility to grant your money to your favorite charities whenever you want
  4. Grow your fund’s value tax-free through wise investing in our nearly $300 million diversified portfolio

This new smart giving strategy has been cited as a popular technique in national news outlets like Forbes, the New York Times and the Wall Street Journal.

Locally, tax experts are recommending this strategy, including 415 Group:

“We are advising our charitably inclined clients to take advantage of this bunching strategy by opening a Donor Advised Fund through Stark Community Foundation, which will provide them with the greatest tax benefit while still being able to support the causes they care about in future years.”

Chad R. Isler, CPA, MT
Senior Manager
415 Group

The two scenarios below illustrate the difference between bunching and not bunching with a Donor Advised Fund.

In Scenario 1, a married couple has state, local and property taxes capped at $10,000, $8,000 in mortgage interest and $5,000 in charitable gifts for a total of $23,000 in deductions – each year falling $1,000 short of the standard deduction, thus receiving no tax benefit for the deductions. In this scenario, over the three-year period, the couple has a total cash outlay of $69,000 and receives $72,000 of standard deductions.

In Scenario 2, the same married couple who typically gives $5,000 to charity each year decides to bunch their gifts in year one with a larger charitable contribution of $15,000 into a Donor Advised Fund at Stark Community Foundation – allowing the couple to exceed the standard deduction and itemize their taxes. For the next two years, they don’t make any charitable contributions and take the standard deduction, but continue to support the causes they care about through their Donor Advised Fund. In this scenario, over the three-year period, the couple has the same total cash outlay of $69,000, but generates $81,000 of itemized deductions – an additional $9,000 of deductions compared to Scenario 1.

Plus, the couple’s initial gift of $15,000 would have grown to $17,310, based on Stark Community Foundation’s 2017 investment return of 15.4%.

Curious about charitable bunching?
Check out our one-page overview and talk to your professional advisor to determine if this strategy makes sense for your situation. If you are interested in learning about how to open your personal Donor Advised Fund or add to your existing fund through Stark Community Foundation, contact Bridgette L. Neisel, vice president of advancement, at bneisel@starkcf.org or 330-454-7992.

The scenarios above are examples only and should not be viewed as tax or legal advice.

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