Bunch Your Donations Together to Claim Tax Deduction

BY STEVE DINNEN

The new tax reform law could put a crimp on charitable giving. We’ll explain in a moment. But first, there may a solution, at least partially.

For that we need look no further than the Community Foundation of Greater Des Moines. It offers a service—bunching, you can call it, or front loading—that allows you to give whatever it is you can (you may have to stretch to give more than you normally would at one time) in order to properly claim a tax deduction as you itemize the expenses on your tax return. And then the foundation will see that the charity of your choice gets the money intended for it.

The tax problem with gifting arose because of the near doubling of the standard deduction granted taxpayers for 2018 and beyond. Now that they get that boosted deduction, many taxpayers will find that they are less able to itemize deductions, and the only way you get a tax break is by itemizing.

The problem is exacerbated by a limit of deductions for state and local income taxes, which also go onto Schedule A. Further, mortgage interest—yet another Schedule A item—is disallowed for the portion of a loan amount that exceeds $750,000.

Add it up, and the itemization limits potentially spell bad news for charitable giving. Yes, people will still donate to their favorite charities. But it never hurts to have Uncle Sam egging along the process by way of a tax break.

To patch things up, Kristi Knous, president of the Community Foundation, said donors can take advantage of a DAF—a Donor Advised Fund. This is a government-recognized charitable fund that pulls in money and then disburses it at the behest of the donor. So if you don’t have enough to qualify every year for itemization, you just give a little extra—here’s the bunching part—and then dole out the money to your selected charities over the next two or three years.

“There’s no minimum to give,” said Knous, just enough to clear that itemization hurdle. You’re not locked in to giving all of that bunched amount to a particular charity, but can change from time to time what you donate to, and how much.

On the plus side of the tax bill vis-à-vis charitable gifting, the upper limit that can be donated has been lifted from 50 percent of adjustable gross income to 60 percent. And one other charitable gifting angle was left untouched. Writing in “FA Financial Advisor,” Russell James noted that donating appreciated stocks, bonds or other assets instead of cash still avoids all capital gains taxes regardless of whether or not a donor itemizes.