Under the Tax Cuts and Jobs Act of 2017 (the Tax Act), it is estimated that fewer than 10% of Americans will itemize on their income tax returns.  However, you only receive a deduction for charitable giving if you itemize.  Therefore, the vast majority of Americans will not benefit from a charitable deduction under the Tax Act unless they bunch charitable gifts together into a year when the individual plans to itemize on their income tax returns.  One way to bunch charitable gifts together is to set up a donor advised fund.

Bunching Charitable Gifts In One Year

One option for those who are charitably inclined is to “bunch” charitable deductions together and to itemize every two or three years.  This can be done via a large gift directly to the charity, prepaying a pledge for the following year, or, if you would like to have the ability to decide when and how to make the contributions in future years, through a gift to a donor advised fund.

Donor Advised Funds

Setting up a donor advised fund is straightforward: you make an irrevocable donation of as little as $5,000 to a donor advised fund that qualifies for an immediate charitable deduction. The gift grows tax free, allowing you to pass money to charities over time, as you see fit.  You can contribute cash or long-term appreciated assets to a donor advised fund.

It can literally take five minutes to set up and fund a donor advised fund, and the donor can name it after your family or use a completely anonymous name.  Once set up, you can even include family members in the grant making process.

If you are considering bunching your charitable contributions together or opening a donor advised fund, it is important that you work with appropriate advisors, such as an accountant, financial advisor, and estate planning attorney. This will ensure your charitable gifts are as effective as possible.

Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area.  For more information and to learn about our firm, please contact us.