Charitable Bunching and Donor Advised Funds Considering Higher Standard Deductions

Since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, there is a continuing decline in the number of taxpayers itemizing year over year. This also limits the tax benefits of charitable giving. However, for individuals and families who are charitably inclined, there are strategies they can consider to maximize the tax incentives of their giving. 

Leveraging Charitable Bunching

Charitable bunching refers to when an individual estimates their charitable giving goals for the next few years and, instead, makes the gifts in a single year. They then itemize their deductions in the first year and take the standard deduction in subsequent years. By combining this strategy with the use of a Donor Advised Fund (DAF), the individual could maximize their tax benefits further.

Benefits of These Strategies:

• Bunching charitable gifts allows individuals to utilize the tax benefit of making contributions.
• The use of a DAF allows individuals to avoid recognizing a capital gain on the appreciated security. 
• The individual retains control of how funds in the DAF are invested.
• The funds inside a DAF can be invested for growth, which increases the potential size of charitable gifts. 

You can read more details about how these strategies work in the recent article by David DeSalvo, CFP®, Financial Planning Associate, by clicking on the button below. 

Disclosures: The information provided is general in nature, is provided for informational purposes only, and should not be construed as financial, tax, or legal advice. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All financial decisions must be evaluated as to whether it is consistent with your objectives and financial situation. You should consult with a financial, tax or legal professional before making any decisions.