“Bunching”

A married couple typically donates $14,000 annually to their local church. If they have more than $10,000 in state and local tax deductions and have no mortgage, then their total new standard deduction would be $24,000. Therefore, under this scenario, itemizing would not enhance their tax situation because their total deductions did not add up to more than $24,000.

SOLUTION

If they “bunched” three years worth of gifts to their church into one year, then their charitable deduction for itemizing in 2018 would be $42,000, which would bring their itemized deductions up to $52,000 ($10,000 from their state and local taxes and $42,000 from their charitable giving). In the following two years they would not make additional charitable gifts but would take the standard deduction. In this way, their combined standard and itemized deductions for the three-year period increases from $72,000 (3X the standard deduction of $24,000) to $100,000 (two years of standard deductions of $24,000 each plus the 2018 itemized deduction of $52,000). If they were in the highest tax bracket of 37%, they would save $9,990 in taxes. Those in lower brackets would have less dramatic savings.

CHALLENGE

One of the challenges with bunching is that your church or charity’s income would be subject to a “roller coaster ride” of annual support. To smooth out your giving, you may consider a Donor Advised Fund (DAF). Continuing with the example from above, if the couple “bunched” their giving into a DAF, at total of $52,000, then they would be able to direct the DAF administrator to give $14,000 each year to their church, thereby providing the church with the normal $14,000 which they had been giving previously.

Please feel free to call (678.823.0028) or email ([email protected]) if you have any additional questions about “bunching,” DAFs, or anything else.