Over the next few weeks and until year-end, we typically see an uptick in charitable giving by individuals, couples and families interested in giving to charity, and to take advantage of tax saving strategies. This year is a bit different. Under the new Tax Cuts and Jobs Act, the standard deduction limits have been raised for individuals and couples. This could impact charitable giving since donors will have to technically donate more (than the past) to receive tax benefits.
Of course, when it comes to tax changes and how it might impact your overall financial plan, we suggest consulting your financial or tax professional. There is also a strategy that some may consider, which could impact philanthropic efforts – bunching.
What is bunching?
The term refers to bunching all charitable deductions into one lump sum and then putting that into a Donor Advised Fund (DAF). As a refresher, we’ve covered DAF 101 before on the blog – here is a link for a reminder.
From a high level, a DAF can be seen somewhat as a charitable checking account. Money assigned for charitable donations is put into the fund at the front end, usually overseen by a foundation, like the Pittsburgh Foundation. The creation of the account is given the charitable tax deduction on the front end, and then those monies are held in the account and doled out for charitable purposes.
The beauty of bunching and the DAF is that you make a one-time large gift to the “checking account,” and then you can gift out of the fund based on a timeline that works best for you or your charity. You can give the donation all at once, or you can choose to thoughtfully donate over time to multiple charities. It all comes from that same original “pot.”
Why DAFs and bunching are smart strategies
DAFs are a great solution for people who prefer to give to multiple charities, multiple times per year. Through the fund, the charities will still receive the dollars from the donor, but now the donor can take advantage of creating the fund and meeting the new tax law objectives. These funds, and the bunching strategy, are becoming more mainstream and have evolved out of donor demand. With the new tax law in effect, we believe this strategy will increase in interest given its dual ability to allow donors to give, and still take advantage of the tax credits.
With certain factors in play – a strong stock market, the ability to donate appreciated securities through the DAF and the bunching strategy – 2018 should prove to be a strong year for giving. And, while a new tax law may impact traditional giving strategies, by giving yourself enough time and imparting new tactics, individuals, couples and families can still make a meaningful impact on charities, and receive tax credits that they have grown accustomed to through previous years’ donations.
As always, appreciated securities are excellent products to utilize for this strategy, by eliminating capital gains and receiving a charitable deduction for the full fair market value of the securities.
Jennie Zioncheck is a guest blogger for Ramparts. She is the Director of Development at The Pittsburgh Foundation, where she works closely with donors, financial advisors CPAs and estate attorneys in identifying strategies and solutions for charitable giving.