Charitable Giving: Going Big and Paying Less - Adviser Investments

Charitable Giving: Going Big and Paying Less

April 23, 2021

Charitable giving is one of the best ways to leave a legacy or support a worthy cause. Those are reasons enough to give, but as wealth managers, we also appreciate that donating to charities can reduce your tax bill—and you still have three weeks until the extended May 17 filing date.

When you contribute to an IRS-recognized charitable organization, the sum can be deducted from your adjusted gross income (AGI). However, the threshold for itemizing deductions was increased in 2017: It’s $12,550 for single filers and $25,100 if you are married and filing jointly.

So, from a tax perspective, if you plan to give, give big since you’ll get no added tax advantage for contributions below these thresholds. One way to benefit is by “bunching” your contributions into a single year. Let’s look at an example.

You and your spouse file jointly, and your marginal tax rate is 24%—your AGI is between $172,751 and $329,850. You pay state and local taxes, and you make monthly payments on a mortgage for your home. Between your mortgage interest and state and local income taxes (SALT), you have $10,000 of deductions. If you use the standard deduction, you lose the taxable benefit of your mortgage interest and SALT payments.

Now let’s say you’ve decided to make a five-year pledge of $15,000 annually to your alma mater. With your charitable contribution of $15,000 this year, your total deductions rise to $25,000, which is under the standard deduction.

However, if you can bunch higher contributions into fewer years, you can start to save on taxes. By bunching two annual donations into a single year, you double your deductible contributions from $15,000 to $30,000, and your savings jump to $3,576. Bunching three years of contributions to $45,000 (in one year) brings you to $7,176 of tax savings. And in years when you don’t donate, you’d simply revert back to the standard deduction—resulting in an overall tax savings.

If you want to bunch your charitable giving into a single year but don’t know where you want the money to go initially, a donor-advised fund can be a viable solution. We will explain that in more detail next week, when we discuss four effective strategies for charitable contributions.

If you can’t wait for next week for more information on how to make your charitable giving impactful, check out our special report, Making the Most of Your Charitable Giving.

As always, your situation is unique, and bear in mind that our example is one of several ways you can offset income with charitable giving. Feel free to speak with your wealth management team here at Adviser Investments or your outside tax professional with specific questions on how to give charitably and tax-efficiently. As The Planner You Can Talk To, we stand ready to help.


This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.