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“Bunching” Charitable Giving with a Donor Advised Fund

Most taxpayers won’t accumulate enough itemized deductions to exceed the new standard deduction. But if they plan deductions to be incurred over every other (or every third) year, they may periodically exceed the standard deduction and secure a tax benefit for their charitable donations in that “bunched” year.

The key is pushing some deductions off to a future year and then, in that year, accelerating charitable gifts and deduction. Donors can give “bunched” charitable gifts directly to charities in one year, but this leads to irregular giving and receiving of gifts with no gifts given in subsequent years until next “bunching” event occurs.

Solution: Set up a non-endowed donor advised fund (DAF) at the FM Area Foundation to hold the larger periodic charitable gifts until they are dispersed. The gift and deduction are given and received in one year while grants awarded to charity from the fund are given in consistent increments during the years between “bunching.”

EXAMPLE: 

Taxpayer, as a result of the loss of SALT and other deductions, can’t itemize each year but instead takes the standard deduction. She has traditionally given $10,000 each year in charitable contributions. In 2019, she defers charitable contributions, making none. Instead she makes pledges to charities she wishes to benefit.

In 2020, she donates $30K to a donor advised fund. She uses some of those funds to pay off the 2019 pledge and makes a $10,000 gift in both 2020 and 2021.