by Sarah Weaver, JD,
senior gift planning advisor at CICF
With the passage of the Tax Cuts and Jobs Act last December, there is speculation about the impact the law will have on charitable giving. Because the standard deduction was nearly doubled—$12,000 for individuals and $24,000 for married couples—the Tax Policy Center projects that only 11 percent of households will continue to itemize their tax deductions, down from 26 percent of households under the prior law. With such a dramatic decline in the number of itemizing households, it is possible, even likely, that charitable giving nationally will decrease in 2018 because non-itemizing households do not benefit from the charitable income tax deduction.
One solution is the concept of “bunching” through the use of a donor-advised fund. Bunching permits a donor to (1) contribute several years’ worth of donations to a donor-advised fund, (2) itemize his or her tax deductions for that year and receive the charitable income tax deduction for the full amount contributed, and then (3) grant money from the fund out to the donor’s favorite charities over the desired number of years. In the subsequent years after the initial contribution is made, the donor then takes the standard deduction.
With a donor-advised fund, the fund’s administrator legally holds and controls the funds once contributed, but the donor recommends grants from the fund—the charity to which it should be directed, the amount of the grant and the timing. Because most donor-advised funds have few or no requirements as to when the funds must be spent out from a donor-advised fund, donors have the flexibility to spread out gifts from the fund over any time period. Moreover, as concerns arise around a decline in charitable contributions, bunching through donor-advised funds may help ensure that non-profit organizations continue to see consistent annual contributions.
Central Indiana Community Foundation’s (CICF) donor-advised funds are an excellent vehicle for bunching. Not only do donors receive the benefit of the strategic charitable income tax deduction, but CICF’s philanthropic advising team also works with donors to ensure their philanthropy is as impactful and meaningful as possible. Furthermore, donors can contribute virtually any asset to their donor-advised fund. With the stock market continuing to perform extraordinarily well, many donors have found donating appreciated securities particularly attractive. In addition to receiving the tax benefit of the bunching strategy, donors of appreciated securities also avoid the payment of capital gains tax on the realized gain.
If you already have a donor-advised fund with CICF or one of its affiliates, we would be happy to help you make a bunched contribution to your existing fund. If you are interested in learning more about how you can start a donor-advised fund with CICF or one of its affiliates in order to take advantage of bunching your charitable contributions, call Mary Stanley, director of charitable gift planning and legal affairs, at 317.634.2423, ext. 319 or Sarah Weaver, senior gift planning advisor, at 317.634.2423, ext. 510.
This article is provided for informational purposes only and should not be construed as legal or financial advice. Each individual’s situation is unique, so before making any decisions around charitable giving, including those discussed herein, you should consult your own legal and financial advisors.