10-29-2018 · Tocqueville Society · Tocqueville Women United · Ivan Allen Circle · Legacy Leaders


With the passage of The Tax Cuts and Jobs Act effective for 2018, many people are reassessing their tax situation and how they make philanthropic gifts. The standard deduction increased to $24,000 per couple, and state and local property taxes capped at $10,000 annually. As a result, some will not be able to itemize for 2018 and therefore will not benefit from a tax standpoint for their gifts to charities. One solution is to open a Donor Advised Fund and combine it with a technique called “bunching.”

A Donor Advised Fund (DAF) is an agreement between a donor and an organization that gives the donor the right to advise on how the donor’s contributions will be invested and how grants to charities will be made. Contributions may be tax deductible in the year they are paid to the fund and cannot be used to benefit the donor or their family members.

Considerations:
If you make several gifts to non-profit organizations annually totaling more than $10,000, hold appreciated securities, expect to have a high income tax year through a bonus or financial windfall, are selling a business or asset, or are updating your will or estate plan, a DAF may be a good fit for you.

A DAF can:

  • Help you simplify and organize your giving
  • Take advantage of tax benefits from lowering taxes and avoiding capital gains by donating appreciated stock
  • Allow you to continue to support organizations that are important to you annually in years when you don’t itemize

When a DAF is combined with a bunching strategy, here’s what can happen:

Example and assumptions:

  • Taxpayers, a married couple, typically makes charitable gifts of $12,000 per year
  • Home is paid for and the $10,000 limit on state and local taxes is met
  • Under this scenario, the Standard Deduction of $24,000 will be used when filing their taxes for 2018.

Instead, taxpayers set up a DAF in 2018 and contribute appreciated stocks/mutual funds (that have been owned for at least one year) totaling $24,000.

  • Their deductions now total $34,000 for 2018 (charitable giving plus state income/property taxes), allowing them to itemize rather than claim the Standard Deduction.
  • In 2019, they do not contribute to the DAF, and instead, just claim the Standard Deduction, but they instruct the DAF to make their charitable gifts as follows:
    • $12,000 in 2018, and
    • $12,000 in 2019
  • By bunching and by contributing appreciated securities rather than cash, they have saved thousands of dollars in income tax and can still achieve their charitable giving goals!

We recommend you consult with a professional adviser as to the impact a Donor Advised Fund could have on your specific tax situation.

Questions? Please contact Eve Powell, Director of Individual Giving at epowell@unitedwayatlanta.org or 404-527-7215.