How "Bunching" and Donor-Advised Funds Can Maximize Your Giving

July 06, 2018

Last year, we were concerned that the new tax law might cap or eliminate the charitable deduction. Fortunately, it didn’t. However, for many, it effectively did.

The new legislation impacts the standard deduction for both individuals and families. The amount you can subtract from your taxable income without itemizing deductions on your tax return will rise to $12,000 for individuals and $24,000 for married couples.

There is some concern among the nonprofit community that this new tax law is a disincentive to give for those who typically deduct their charitable contributions. However, there is a way to continue to give and get your charitable deduction by using a method the accounting community calls “bunching.”

“Bunching” can be done by doubling up on your contributions in one year, immediately receiving a tax deduction. And this is where a donor-advised fund can help. During the deduction year you put the money, which can be gifts of cash and securities, such as appreciated stock, into your donor-advised fund. You immediately receive your tax deduction, and then you may give your charitable dollars to the nonprofits of your choice whenever you wish.

The Community Foundation of Abilene works with donors and their professional advisor to help them “bunch” their charitable contributions into donor-advised funds in one calendar year. This ensures donors have the charitable dollars required to exceed the standard deduction. Donors may then recommend to which charities they wish their donor-advised funds to support, maintaining their previous donation schedules.

Donor-advised funds are much like a private foundation except there is no mandatory 5% distribution and the Community Foundation staff handles all of your legal, accounting and due diligence work.

A few key points to remember:

• The minimum to establish a donor-advised fund is only $10,000.
• A gift to your donor-advised fund is immediately deductible.
• You may choose to have the money in your donor-advised fund invested so it is actively managed as you decide where to give it.
• Finally, “bunching” allows you to continue to give, and a donor-advised fund provides the vehicle through which to manage and distribute your philanthropic dollars.

We would love to chat with you about your charitable giving goals.