Brad Long, CFP®, MBA, CPFA™
Your gift to charities like Hospice of the Chesapeake makes a difference for people in need. Did you know your generosity might also mean a healthy tax deduction for you? There is a simple strategy that may potentially save you money when you file your taxes. The strategy is called bunching.
First, some background: The Tax Cuts and Jobs Act of 2017 roughly doubled the standard deduction through 2025. For most Americans, this high standard deduction—in 2023, $13,850 for individuals and $27,700 for filing jointly—means itemization is not the best way to maximize their tax deductions.
Donation bunching is a tax strategy that allows taxpayers to “bunch” their donations into a single year so they can receive a higher itemized deduction for that year and the standard deduction for the other year. Those who are charitably inclined and find themselves on the margin between taking the standard deduction or itemizing can maximize their tax benefits by bunching.
One way to accomplish this is with a donor advised fund (DAF). DAFs allow you to contribute money at any time, qualify for the charitable deduction in the current tax year, invest the money tax-free, and then donate to charities at your timetable.
Use a DAF to shift your tax burden without interrupting the flow of your donations. Money going into a DAF is counted among your tax-deductible contributions even if the money has not been distributed to charitable organizations. Add to your DAF at any time, including bunching your donations into a single tax year, and then distribute those funds according to your plan to best serve organizations like Hospice of the Chesapeake and meet your philanthropic goals.
Bunching isn’t right for everyone. Charitable bunching may work for you if:
- Your deductible expenses tend to be just over or just under the standard deduction each year.
- You expect to have a lower income in the future because of expected retirement, career change, family changes, or other circumstances. Bunching deductions this year can lower your taxable income in a year when you may be subject to a higher tax rate.
- You expect to have an unusually high income this year from a large bonus, investment gains, or other sources.
- You expect significant changes in other deductible expenses such as medical expenses or taxes.
The key takeaway is that charitable bunching can help you concentrate tax deductions in certain years to minimize taxable income and maximize your generosity over time. A DAF is one way to enact this approach.
Read more about DAFs: https://hospicechesapeake.planmygift.org/donor-advised-funds
Brad Long, CFP®, MBA, CPFA™, is a Financial Advisor with RJFS, Long Financial Services, Inc., and a member of the Hospice of the Chesapeake Planned Giving Advisory Council.
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This information should not be considered legal or tax advice. Consult your financial or legal advisor for guidance. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brad Long and not necessarily those of Raymond James.
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