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Bunching Contributions, a Year-End Charitable Giving Strategy

by Crewe Foundation
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As the end of the year approaches, it’s time to start thinking about how you want to allocate your charitable giving. There are several different ways to approach year-end giving, and the best strategy for you will depend on your overall financial goals.

If you’re looking to maximize the tax benefits of your giving, then you’ll want to focus on making large donations to qualified charitable organizations like a donor-advised fund with Crewe Foundation. Keep in mind, however, that you’ll need to itemize your deductions to take advantage of this strategy.

If you’re more interested in making a difference with your giving, then you’ll want to focus on finding organizations that align with your values. Researching different charities can be a great way to learn about the good work they’re doing and ensure that your donation will be used effectively, but can also be time-consuming if you are on a deadline. This is a great time to use a donor-advised fund. You can make the gift immediately and continue your search until you’ve found the organizations you want to support.

Either way, several strategies will help you make the most efficient use of your annual gifting. Here’s one strategy to consider:

Bunch your contributions. Utilize both the standard deduction and itemized deductions by bunching two years of contributions into 2022. 

There are several things to keep in mind when it comes to charitable giving and taxes. One strategy is to bunch your contributions to get more deductions. It’s become commonly known in the industry as bunching. It simply means making two or more years of charitable contributions in one single year so that you can itemize the contributions on your tax returns. This can be a great way to maximize your deductions and save money on your taxes. Your goal here is to utilize both the standardized deduction and the itemized deduction, one each year.

In 2022 the standard deduction for single filers is $12,950 and for joint filers, it is $25,900. In 2023 those standard deductions increase to $13,850 and $27,700. To use an itemized deduction you have to exceed those numbers. It’s not always easy to do in a single year, but with bunching, it becomes possible for more tax filers to take advantage of the deductions offered by the IRS.

Here’s an example of how this might work. Let’s say there is a couple that files jointly that adds up all of their deductions and it totals $24,000, which includes $13,000 of charitable gifts that they make each year along with $11,000 in other deductions. The amount, $24,000 falls below the $25,950 in 2022 so the couple would be better off taking the standard deduction. If things remained the same in the following year they’d run into the same predicament.

If they decided to bunch up the donations this year though, donating $26,000 ($13,000 for 2022 and the same amount they plan to donate in 2023) along with the other deductions of $11,000, the combined itemized deduction would be $37,000. The following year they could simply take the standard deduction of $27,700. Combined for the 2 years they could deduct $64,700 versus just using the standard deduction each year which would combine to $53,600.

However, you need to make sure that you have the financial ability to do this. Otherwise, you could end up in a difficult financial situation. Always consult your professional advisors to make sure something like this would work in your situation.

Consider using a Crewe Foundation donor-advised fund account.

A Crewe Foundation donor-advised fund account can be a great way to make tax-deductible bunching contributions before year-end. With a donor-advised fund, you make a tax-deductible contribution to the account and then recommend grants from the account to qualifying charities over time.

This strategy has a few key advantages. First, it allows you to “bunch” your charitable donations into one year and take the resulting deduction in that year, as mentioned in the example above, rather than making smaller deductible gifts in multiple years. This may be especially beneficial if you anticipate being in a higher tax bracket the year that you are bunching your contributions.

Another advantage to using a donor-advised fund is that it’s a great way to donate appreciated securities. When you are considering the assets you want to contribute and are also looking at rebalancing your portfolio due to an overweight position that has appreciated more than others, you could donate shares instead of selling and rebalancing.

When you donate shares of appreciated securities that you’ve held for more than 1 year, you create a deduction equal to the fair market value of the securities. You’ve essentially rebalanced and avoided the capital gains tax that would be due if you sold the stock.

A third benefit to using a donor-advised fund in your bunching strategy is that the contributions are invested and have the opportunity to grow tax-free.  Using the example above, the couple donated $26,000.  If they wanted to make gifts each year they could recommend a grant for $13,000 and let the other $13,000 grow for a year.  Depending on how the investments perform during the next year they could have a gift that is greater than $13,000.

Start Your Contribution Planning Now

If you plan on making year-end contributions they need to be received by the Crewe Foundation by December 31 to be able to claim them on this year’s tax returns.  This includes any bunched contributions you plan on making.  Donating assets to your donor-advised fund gives you the time to develop your giving plan and then start making grants when you are ready with the funds you donate now.  Donating cash can be as simple as delivering a check or wiring funds, but donating publicly traded securities may take a bit longer because of the paperwork involved.  Be sure to coordinate with your advisors and Crewe Foundation as you prepare to make your contribution.

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