How To Make The Most Of Charitable Deductions Through Bunched Giving

By Bill Reiner, CFP®, ChFC®

Charitable giving helps the causes that are important to us, while also helping to reduce our tax burden. And because the past years were difficult for so many, you may be looking to give more if you’re able. But how and when you choose to give to others can affect how much of a tax benefit you receive. Learn how “bunched giving” in your charitable strategy can help you make the most of your charitable deductions.

Give Through A Donor-Advised Fund

What if  you would like to contribute money by a year-end deadline but don’t want to rush through your giving decisions? One way to do that is through a donor-advised fund, which lets you contribute a sum of money at once, then distribute those funds to nonprofits on your schedule, which can span years if you prefer. Note that you can contribute securities or other assets besides cash to a donor-advised fund.

For example, you can contribute $30,000 today to a donor-advised fund, capturing the total amount as a tax deduction for the current tax year, then donate $10,000 a year to causes you care about for the next three years. This allows you to “bunch” your contribution so you can itemize, and yet still give annually to your selected charities.

Most large financial firms offer donor-advised funds to their clients, and a financial advisor can help you navigate whether this option would work for your charitable giving plans. The money you contribute to a donor-advised fund can be invested through the firm’s investment options for tax-free growth.

Contributing to a donor-advised fund can also be a smart strategy if you want to capture the tax benefits of charitable giving before the end of a calendar year but haven’t had the time or don’t want to rush how you distribute the money. Note that cash donated to a donor-advised fund is not eligible for the higher cash deduction limit under the CARES Act.

Qualified Charitable Distribution

A Qualified Charitable Deduction (QCD) may be another opportunity for your year end planned giving. A QCD involves directing the Required Minimum distribution, those over age 70 ½ must take, directly to the charity. This contribution counts towards your RMD for the year and yet is excluded from your taxable income. In years past, your charitable contribution would simply offset the taxable income from the distribution. This in no longer the case. The maximum allowable amount you can donate this way is $100K.

Maximize Your Charitable Giving

Many of us want to give back. Having a strategy for your charitable giving can bring you rewards but creating a charitable giving plan can be complicated. If you’re one of my existing clients, we can always meet to obtain an update on your circumstances and see if any adjustments should be made. If not and you’re interested in learning more, call me at (215) 340-2360, email, or schedule a free 30-minute consultation.

About Bill Reiner, CFP®, ChFC®

Bill has been in the financial industry since 1995, earning numerous professional designations, including the Certified Financial PlannerTM Certification in 1999. Bill is committed to honesty and unwavering devotion to superior client service. He helps clients discover what financial strategies work best in helping them work toward their goals and objectives. When taking on new clients, he works diligently to gain their trust and help them understand the strategies he recommends.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA / SIPC. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principle. With any investment vehicle, past performance is not a guarantee of future results. Diversification and asset allocation strategies do not assure profit or protect against loss.