Bundle Your Gifts, Supersize Your Deductions
The 2017 Tax Cuts and Jobs Act passed last December has afforded many of our generous donors with tax-wise giving opportunities including a new twist on a proven tactic: Bundling several years of intended contributions into a donor advised fund (DAF) allows you to supersize your income tax charitable deductions.
The new standard deduction is $12,000 for single taxpayers and $24,000 for married persons filing jointly. The new law also sets a $10,000 maximum for state and local real estate and income taxes. These limit many people to only the standard deduction – unless they bundle their charitable donations.
Consider this example for a donor who knows 2018 will be an especially high-income year. They have no mortgage (therefore no mortgage interest to deduct), property tax on their home is above that $10,000 maximum, and their medical expenses won’t be deductible as they will be under 7.5% of their adjusted gross income. They normally donate $30,000 each year to their DAF, so this year they could claim deductions totaling $40,000.
Because they know their income will exceed $400,000 this year, and because they are highly committed to granting from their DAF on a consistent basis to the charities of their choice, they decide to bundle three years of gifts and make them all in 2018. Their $90,000 donation to their DAF will grow tax free allowing them to make recommendations to various charities when they see fit over the next three years.
By bundling these contributions – plus the $10,000 state and local real estate and income maximum – their deduction will be $100,000 in 2018, and they plan to claim only the standard deduction in 2019 and 2020. Their total deduction over three tax years will be $148,000 instead of $120,000, a bonus of more than 20% that sharply cuts their income tax bill.
Everyone’s tax situation is different and now is a great time to talk to your trusted financial advisor before the end of the year rush.
To learn more about your charitable options and how to start a DAF or a legacy fund please contact me at firstname.lastname@example.org or call (804) 545-8656.