Utilizing Charitable Bunching For Your Philanthropic Giving
My experience with charitable giving throughout my 35-year career in philanthropy is that people are not giving just to get a tax deduction. They are giving from the heart because they are passionate about their causes. However, with a bit of strategic planning, many donors may still reap tax benefits for their charitable giving while continuing to create change in their communities.
In January of this year, I wrote a column about how the nonprofit sector might see a change to charitable giving under the new tax laws. Leading up to the change to tax law there was a lot of worry surrounding a decrease in charitable contributions due to the raising of the standard deduction. While it is true that fewer people are itemizing this year, the raising of the standard deduction has actually led to an increase in new donor advised funds opened at the Community Foundation.
One of the reasons for this increase is a new charitable giving strategy known as ‘Charitable Bunching.’
Many individuals who have a history of charitable giving found themselves in an unfamiliar situation this year due to the new tax law. As I mentioned before, the standard deduction that can be subtracted from your taxable income without itemizing will rise to $12,000 for individuals and $24,000 for married couples.
The ‘charitable bunching’ strategy allows donors to maximize the tax benefit of their charitable contributions in light of the update to tax law. Bunching simply means that the donors utilize their donor advised fund (DAF) and bunch their contributions. For example, donors can start by contributing three years’ worth of giving to their DAF. In that year, the donors itemize their deductions when filing their tax return. In the next two years, the donors make their contributions to receiving charities through grants from their donor advised fund and claims the standard deduction on the tax returns for those years. In the fourth year, the process begins anew.
Many donors who did not previously choose to open a donor advised fund are utilizing this bunching strategy as an important tool for their charitable giving. If you are unfamiliar with donor advised funds or would like to learn more about charitable bunching, I encourage you to visit the donor advised fund page on our website.
I know tax planning can present its unique set of headaches. As always, I would encourage you to speak with your CPA or tax advisor about your options. The professionals at THCF are more than happy to meet with you and your advisor to discuss whether charitable bunching makes sense for you. I believe it is important to be strategic about your plans for the future. Do some tax planning so you ensure you have the most tax effective approach, minimize your 2018 taxes, and enhance your charitable giving.