facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog search brokercheck brokercheck
%POST_TITLE% Thumbnail

Tax Strategy: Bunching Charitable Donations

I'm saving over $1,500 by utilizing this tax strategy for 2018. Find out more in the video below, or read on!

The new tax laws for 2018 make itemizing tax deductions less likely to be effective. The new standard deductions has doubled (to $24,000 for married couples) and we lost some of the highest deductions possible (SALT). However, I still find myself right on the border of itemizing versus not, and there is a simple strategy that can save a few thousand dollars: bunching charitable giving.

I'm going to keep this article short and sweet with just the bullet points. If you're interested, research mode details via Google. The bottom line is that if:

  1. You give to charities each year and 
  2. You are close but not over the $24,000 that make itemizing deductions worthwhile then

You can "bunch" a few years worth of charitable giving (via a donor advised fund) this year (and itemize deductions) and then take the standard deductions over the next couple of years.

Are you over $24,000?

In brief form, count up your deductions from the following that are (the biggest items) available to itemize:

  1. Medical Expenses (in excess of 7.5% AGI or 10% AGI). This is a tough one because of the AGI limit, but if you have a lot of medical expenses, they can be deductible.
  2. State and Local Taxes (SALT). This is now limited to $10,000.
  3. Mortgage Interest. This is also somewhat limited, but only for mortgages over $750,000.
  4. Charitable Giving.

Let's add up an example (mine!) and see how it works for real.

  1. Medical Expenses: $0. I don't have nearly enough to surpass the AGI limits.  
  2. SALT: $10,000. I live in Taxachussets, so I hit the maximum in property taxes here.
  3. Mortgage Interest: $8,500. I still have a pretty large mortgage, so I get quite a bit here.
  4. Charitable Giving: $3,000. My wife and I give to our alma maters each year and then quite a few smaller donations throughout the year.

Total for 2018: $21,500. Oh so close, but the standard deduction is higher.

However, if I pre-give 3 years worth of alma mater donations to my donor-advised fund (and then actually give them out each year), I get to take another $9,000 in deductions this year, which brings me to $30,500. In this case, I'll get to itemize those deductions this year and then the next few years, will take the standard deduction of $24,000 each year.

Let's keep it simple and assume I'm in the 24% tax bracket, this calculator shows that I'd have a tax savings of $1,560. It's not going to change the world, but it's real money.

Here at the end of the year, this is a good strategy to double check for yourself. Me? I'm going to do it and save some $$. (Better yet, I'll donate appreciated stock to get yet another tax-savings for my charitable giving!)