Legacy magazine: “Year-End Tax Planning Tips”

Charitable Gift Bunching Using Donor Advised Funds

Every year you (or someone on your behalf) decide whether to itemize deductions on your income taxes or take the standard deduction. To justify itemizing, your total deductions for the year need to exceed the applicable standard deduction, which was increased under the new tax law to $12,400 for individuals and $24,800 for joint filers.

Without getting into the complexities of tax law, here is what’s important to understand: The increase in the standard deduction, combined with the reduction or elimination of many itemized deductions, means that most people will no longer be itemizing. And without itemizing on your 2020 tax return, you won’t be able to claim any tax benefit for your charitable giving.

Fortunately, there is a simple four-step strategy called bunching that you can use to retain your charitable tax deduction. If you are charitable and would otherwise be taking the standard deduction on this year’s tax return, following these steps allows you to maintain your normal giving patterns while preserving your full charitable tax benefits. This is a win-win for both you and the causes you care about, which will benefit from continuing to receive consistent contributions.

  1. Estimate the amount of charitable gifts you plan to make over the next two or three years.
  2. Contribute that amount into a Donor Advised Fund (or DAF), an easily established charitable giving account that can be opened with contributions as low as $5,000 at The Foundation.
  3. Claim a charitable deduction for the entire contribution made to your DAF on the current year’s tax return. Your contribution to a DAF qualifies as a charitable deduction while you maintain a high degree of discretion to recommend gifts from it to charities of your choice on your timeline.
  4. Continue your regular giving from your DAF and take the standard deduction on your tax return in the subsequent year or two.

Using a DAF for bunching provides you the greatest flexibility and helps nonprofits maintain the stability needed for their important work in our community. Establishing a DAF at The Foundation is a simple, straightforward process. To learn more, please call us at 323. 761.8704 or email development@jewishfoundationla.org.

This article was featured in The Foundation’s Winter 2020 Legacy magazine.