‘Bunch’ Your Charitable Giving to Maximize Deductions

Bunch charitable giving to maximize deductions.

The Tax Cut and Jobs Act of 2017 brought significant changes to deductions available to U.S. taxpayers. The legislation nearly doubled the standard deduction but capped the state and local tax deduction at $10,000 and eliminated “miscellaneous 2% itemized deductions.” For some people, itemizing may no longer make sense because they now will benefit more from the larger standard deduction.

Since charitable deductions are an itemized deduction, is there a way under the tax overhaul to reap tax benefits while supporting your favorite charities? Yes, there is – you can accelerate your charitable giving.

By donating a larger amount to charitable organizations in one year instead of spreading the same amount over several years (this is often referred to as “bunching”), you may be able to realize larger tax savings over that time period.

Consider these two scenarios:

In this example, the couple’s itemized deductions before charitable gifts totals $19,000. Since the Married, Filing Jointly (MFJ) standard deduction is $24,400, the first $5,400 of charitables (in this example) will not produce a tax benefit.

However, by bunching their charitable gifts in 2019, the couple can see greater tax benefits.

In this scenario, the couple accelerates charitable giving into a single year (2019) to maximize itemized deductions and takes the standard deduction in subsequent years (2020-2022). The composition of itemized deductions is the same under both scenarios, yet Scenario #2 produces a greater tax deduction of $16,200 over the four-year period.

Bunching charitable gifts can be particularly effective for charitably inclined taxpayers without deductible medical expenses (greater than 10% of Adjusted Gross Income) and with no minimal mortgage interest.

Are you interested in bunching your charitable gifts for 2019? Please reach out to us directly, 770-368-9919, or email Cliff, [email protected]; Kevin, [email protected]; or Kathy, [email protected] to learn how we can help.

You can also download our 2019 Financial Planning Guide for more valuable tips on tax planning, cybersecurity, risk management, estate planning, and saving for college.

Disclaimer: This material is intended for the exclusive use of clients or prospective clients of C.W. O’Conner Wealth Advisors, Inc. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecast represents median expectations and actual returns, volatilities and correlations will differ from forecasts. Past performance does not indicate future performance.