Free Expert Tax Advice
Donor Advised Funds and Bunching
Donor advised funds, which have been around for decades, have been growing in popularity among the charitably-minded in response to increases in the federal tax standard deduction. And, who better to explain that than a couple of our donors who happen to be Certified Public Accountants?
Fred Manter, long-time principal in the CPA firm of Holbrook & Manter, and his wife, Joan, created a donor advised fund (DAF) in 2019. Fred is well versed in the tax benefits of this type of fund, especially when combined with a giving strategy called “bunching.”
Increases to the standard deduction and elimination a number of tax deductions negatively impacted some of the advantages of charitable giving, Manter said. The combination of a DAF and bunching gives back these benefits the government took away.
A donor advised fund functions much like a charitable checkbook, allowing donors to give when and where they desire. Bunching is a multi-year strategy which involves putting a large lump sum into a donor advised fund—large enough to itemize (beyond the standard deduction)—then planning and making grants over succeeding years. The result is a tax deduction in the year of the gift plus the standard deduction in subsequent years.
This combo, according to Fred, makes his and Joan’s charitable giving more effective and gives them control over their philanthropy.
“Marion Community Foundation helps us achieve our charitable goals,” he said. “We support the community and can give to the charities we want, in the time frame we choose, while maximizing our tax benefits.”
According to Brad Ridge, a Director and CPA with Holbrook & Manter, an advantage of DAFs is that donor’s can retain some influence and advice over their gifts while also realizing federal tax benefits if they file their tax returns utilizing itemized deductions. Itemized deductions can be beneficial if they exceed the expanded standard deduction that is provided.
For the tax year 2023 the standard deduction for an individual is $13,850 and for joint filers $27,700.
“Because the standard deduction was expanded several years ago, many taxpayers do not have enough income and real estate taxes, mortgage interest and charitable deductions to benefit from itemizing,” said Brad. “Even if their itemized deductions do exceed the standard deduction amounts, the benefit is still somewhat limited on an annual basis.”
Brad suggests a couple of common techniques he and Kathy use — bunching and gifts of stock or securities.
“Bunching your charitable giving into one year is one way to receive fuller tax benefits. In addition, funding your charitable giving using appreciated stocks provides even more benefit, as current federal tax law allows for a charitable deduction for the full value of the stock when gifted, but does not require income taxes on the appreciated value,” said Brad. “Of course, with any transactions you are contemplating it is wise to consult a tax advisor, as there are other factors that may limit deductibility for charitable contributions; but, considering a donor advised fund under the guidance of the Marion Community Foundation, may result in a great way to accomplish your charitable giving desires while benefiting from reducing federal tax obligations.”
Additional information on bunching is available under the RESOURCES tab (at the top of this page). And, personal appointments are always welcome. Call us at 740-387-9704.
