If you wish your charitable giving made a bigger dent on your income taxes, you’re not alone. Since the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, many individuals are finding that their charitable donations just aren’t making the same impact they used to.
That’s because the TCJA made sweeping changes that essentially discourage charitable giving, at least relative to prior tax law. It lowered individual income tax rates, thus reducing the value of all tax deductions.
But, rest assured, there is a strategy that has the potential to save you thousands of dollars on your taxes: it’s called “bunching.”
Bunching is a straightforward concept: instead of donating a little bit each year, you bunch multiple years’ worth of charitable donations into a single tax year. This allows you to itemize deductions beyond the standard deduction in that particular year, maximizing your income tax charitable deduction.
By making a larger donation in one year—and none the next year—you can exceed the standard deduction in the bunching year, and then take the standard deduction the following year. Over that two-year period, your total deductions will be significantly higher, potentially saving you thousands of dollars on your taxes.
Of course, this strategy often raises an important question: what if you want to continue giving to charity during your “off” year? That’s where a donor-advised fund (DAF) can help. Putting your bunched donations into a DAF allows you to support your favorite charities while maximizing your tax savings. Plus, in our experience, making a larger gift to a DAF streamlines into just one record to manage and track, with the DAF administrator ensuring any smaller gifts are compliant. This ultimately eliminates your headache of constantly tracking down smaller charitable gift records for tax compliance purposes. It’s a win-win!
You don’t need to be a significant donor or a homeowner to benefit from bunching. Even if you give modestly, you can still bunch donations across multiple tax years for a more substantial effect.
At Santa Barbara Fiduciary, we aim to provide our clients with financial clarity and direction—without creating confusion or unnecessary complication. Reach out to us today to take the first step towards reaching your financial goals.
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At Santa Barbara Fiduciary, we aim to provide our clients with financial clarity and direction—without creating confusion or unnecessary complication. Reach out to us today to take the first step towards reaching your financial goals.
