Charitable Gifting:
Bundling Strategy

Depending upon the amount of your other Schedule A itemized deductions (i.e. medical expenses, state & local taxes and mortgage interest) you may be able to reduce your federal income tax liability by bundling two or more years of charitable donations into one year. This would allow you to itemize Schedule A deductions in one year and take the standard deduction in subsequent years, depending on the amount of your charitable contributions.

For example, as joint filers, if you normally have $10,000.00 of charitable contributions and $13,000.00 of combined state and local taxes and mortgage interest (a total of $23,000.00 of Schedule A itemized deductions), subject to cash flow constraints, you could contribute $30,000.00 to qualifying charities in one year and $0.00 in the next two years. This would result in your income tax return reflecting $43,000.00 of Schedule A itemized deductions in one year and the $24,400.00 standard deduction in the next two years, rather than the $24,400.00 standard deduction for all three years. This tax strategy would result in tax savings ranging from $2,232.00 to $6,882.00 over a three year period depending on your income tax bracket.

Since many people prefer to make charitable contributions every year, one way to utilize this tax saving strategy is to establish a Donor Advised Fund (“DAF”) with a qualified investment firm. Using the example above, you could contribute $30,000.00 to the DAF in 2019, take a deduction for $30,000.00 on your 2019 income tax return and then direct the DAF to distribute the money to your designated charities in future years (which would be more consistent with your giving timeframe). In a future year, you could again deploy this strategy by making a large contribution to the DAF, itemize your deductions for that year, and then take the standard deduction for the next few years, depending on the amount contributed to the DAF.

If you have any questions or are interested in potentially establishing a DAF, please consult your investment advisor.