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Bundling Gifts to Donor Advised Funds (DAF)

Individuals who use the standard deduction do not receive any marginal tax deduction for their charitable gifts. However, if you bundle multiple years of gifting into a single tax year, then you may be able to itemize again. Thus, restoring your charitable tax deduction. A donor advised fund (DAF) is like a charitable investment account, for the sole purpose of supporting your favorite charitable organizations. For example; a couple with deductions of $10,000 from state and local taxes (the maximum deductible under the new tax law) and $14,000 of charitable gifts. That would add up to a total itemized deduction of $24,000, which is equal to the new standard deduction. Thus, the couple is not getting any incremental deduction for their $14,000 of charitable gifts.

How Bundling Restores your Charitable Deduction

Now imagine that instead of directly giving your $14,000 annual gifts to charity each year, you bundle two years of gifts into a single tax year by donating $28,000 to a donor advised fund (DAF). Now, you have $38,000 of itemized deductions. The additional $14,000 reduces your tax bill, a tax savings of about $5,180 for investors in the 37% tax bracket. You can still request that the DAF gifts $14,000 per year to your charitable beneficiaries as you have done in the past.


STRATEGIES FOR USING YOUR DAF IN 2019 AND BEYOND

Bundling charitable contributions

An estimated 96% of taxpayers are now expected to use the newly doubled standard deductions in place of itemization. One strategy to protect your charitable giving and maximize your tax deduction is to make larger contributions in less frequent intervals into a DAF. "Bundling" your gifts --contributing 2-3 years' worth of charitable gifts at once to a DAF -- allows you the flexibility to claim a charitable deduction in year one and to grant the funds out over time.

Giving more in high-income years

Contributing to a DAF during a high-income year is an opportunity to realize your philanthropic aspirations and maximize charitable tax benefits. Thanks to the reduction of the top individual tax rate and the increase deduction limits for cash donations from 50% to 60% of AGI, new tax rules make tax-deductible gifts to a DAF even more beneficial in high income years.

Contributing appreciated assets to a DAF

If you have appreciated assets, consider contributing them to a DAF. If you donate non-cash assets held longer than one year directly to a public charity, you avoid capital gains tax while also claiming a fair market value tax deduction. This strategy reduces your tax obligation and makes more money available for causes important to you.