Bunching Your Donations Under The New Tax Law

By: TSPadmin

Under the new tax plan, the standard deduction for both individuals and couples (i.e., families) has nearly doubled. While it simplifies the tax filing process for most Americans, it also presents new challenges for people who donate to charity and declare their contributions on their tax forms.  

Think about it: You may stop making charitable donations close to the cutoff because there are no tax savings from your generosity. You may also consider pooling your gift on certain years so you can maximize your tax savings via itemized deductions.

Which one is the best option? Well, it depends but you may want to consider bunching (i.e., the second option).  

Consider Bunching as a Strategy

Basically, bunching involves itemizing your donations to charitable organizations every other year. You will then be able to take advantage of the new standard deduction and continue with your altruistic activities.

For example, you can make double donations in 2017. But in 2018, you will not donate so you can take the standard deduction. By 2019, you can start donating again but itemize your charitable contributions – and take the same tack for the succeeding three years.  

If you’re in doubt, you may ask a Liberty Tax Service tax professional about the pros and cons of bunching in your case. In general, nonetheless, you may be able to save hundreds of dollars yet continue helping others via your charitable contribution.  

Consider a Donor-advised Fund

But what happens to your favorite charitable organizations since they will not receive your annual donations? Perhaps, you can consider a donor-advised fund.

With it, you can still make monetary donations while also taking tax deductions for them in the same year. Your contributions will be paid to your chosen charities over time.

For example, you can bunch the donations for several years into a donor-advised fund into a single year. You can then take the tax deduction while the fund managers pay out your gift in equal amounts over a few years. Your selected charities will then still receive the same amount every year even when you didn’t itemize the donation in your tax return.  

You don’t have direct control over your donation when you deposited it in the donor-advised fund. Instead, you can tell the fund manager which charities you want to make the donations to and what amount each one will receive every year. You may also find that your money was invested so your donations may potentially increase.  

You can also make gifts of marketable securities and cash depending on your available resources. You will also be required to pay for fees.

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