“Bunching” Your Charitable Giving

Recent changes in tax law have made it more difficult for givers to receive a tax benefit for making charitable gifts. A dramatic increase in the standard deduction beginning in 2018 changed the financial equation for giving to charity. Generous families who do not itemize deductions or give through their IRAs receive no income tax benefit from their charitable giving.
For those of you who donate regularly, one simple change to your giving strategy may save taxes and increase your giving capacity. Consider bunching your charitable giving by, for example, giving two years’ worth of donations every other year. This strategy may enable you to give enough so that, when paired with your other itemized deductions, your total deductions are greater than the standard deduction. Your taxes should decrease the more your itemized deductions exceed the standard deduction, which in 2020 is $24,800 for married couples and $12,400 for single taxpayers.
A Donor Advised Fund (“DAF” for short) has become a popular way for donors to organize bunched gifts and still give consistently to charities like New Life, even in the years in which donors aren’t making deductible charitable contributions. DAFs are separate accounts opened through charities like community foundations. You make contributions to your DAF account and then act as the account advisor, requesting distributions from the account to your chosen charities over time. You receive a charitable income tax deduction when you fund the DAF account, but have no time limits or constraints for when you distribute the money to your charity.
Bunching your giving is a smart way to organize your charitable giving to New Life and reduce taxes. Want to learn more? Get in touch with your tax advisor today or contact Tammy Kocher, Executive Director, at tammy@nlfs.org or (612) 746-5664 for additional information.