Bunches of Reasons to Give

Jul. 19, 2022 Farm landscape

The transition from spring to summer in Iowa creates a sense of anticipation and planning for everything the next season has in store. Thoughts of spending days on the water, watching gardens grow, connecting with friends at your favorite town festival and much more begin to move from dreaming to planning as you fill your calendar with all you hope to accomplish in the months ahead.

Just as you plan your calendar, you may also begin planning ways to improve upon your tax planning. It is common to make charitable giving decisions at year-end, but by planning ahead now you can take advantage of strategies that maximize your financial resources to meet your financial and charitable goals. One strategy to consider is called bunching.  

Bunching is an effective strategy for donors interested in lowering current tax liability by prefunding future charitable giving. Typically, this giving strategy is maximized by utilizing a donor advised fund, a popular giving vehicle that can be compared to a charitable investment account created with the sole intention of supporting your charitable interests. Donor advised funds provide the opportunity to make financial contributions and then receive the immediate tax benefits. These contributions are then used to advise grants from the donor advised fund to causes you care about whenever you choose.  When utilized alongside bunching, donors can maximize tax savings by making a larger than typical charitable gift to their donor advised fund, realize the immediate tax savings, and then continue their annual charitable support of the causes they care about through grants from their fund. While there are many reasons why this is an attractive strategy, below are two scenarios in which bunching is commonly used.

Ability to itemize charitable gifts

The Tax Cuts and Jobs Act passed in 2017 included a change in tax law that doubled the dollar amount required to qualify for a standard deduction. Currently, the standard deduction for single filers is $12,950 and $25,900 for married couples. This change in tax law has resulted in an increased number of Americans unable to deduct charitable contributions.

By using the bunching strategy, you can take advantage of the charitable deduction. For example, a married donor with itemized deductions in 2021 totaling $20,000, including $7,500 in charitable contributions, most likely took the standard deduction. Now let’s consider if the same donor had bunched three years’ worth of giving into a single tax year and placed the charitable contribution into a donor advised fund. They would raise their deductions to $35,000 and the donor would be able to realize the tax savings available through itemizing. Additionally, because grants can be made over time from a donor advised fund, the donor can maintain their desired $7,500 in annual charitable giving and the causes they care about continue receiving their ongoing support.

Opportunity to Use Noncash Assets

Another popular reason to bunch charitable giving through a donor advised fund is the ability to use noncash assets to maximize tax savings. Many Iowans grab their checkbook when giving to nonprofits, but there may be other assets already in your portfolio that offer more tax-wise giving opportunities. Assets such as:

  • Appreciated securities
  • Grain or livestock
  • Partial interest gifts of real estate
  • And more

There are a bunch of other reasons bunching charitable giving may be the best giving strategy. To take advantage of this highly personal approach to meeting your giving goals in tax-wise ways, we suggest speaking with your trusted professional advisor and connecting with the team at the Community Foundation to learn more. If we take time to plant seeds now, harvest will be abundant for our family, community, and causes we are about. Here’s to a productive growing season.