Reclaim the Tax Benefits of Charitable Giving

Joan’s Toolbox is an occasional series in which Joan Hoge-North, DCF vice president for philanthropy, shares information about different ways of making charitable gifts that maximize impact and tax advantages.

For most of us, charitable giving didn’t result in tax deductions this year because of the increase in the standard deduction.

However, you may be able to qualify for a deduction next year by taking a longer view of your philanthropic giving through a donor advised fund at the Delaware Community Foundation (DCF).

Much like buying food in bulk can save money at the grocery store, bundling your charitable donations through a donor advised fund can be a smart option providing valuable tax savings.

By establishing a donor advised fund and bundling multiple years of giving into a single tax year, you may reach the new threshold for itemizing – over $12,000 for single filers and over $24,000 for joint filers – and restore the benefit of your charitable tax deduction.

It works like this: Say you and your spouse typically donate $10,000 a year to charity. This amount plus your other deductions of mortgage interest, local and real estate taxes might not get you above the standard $24,000 deduction.

But you could reconfigure your charitable giving so you give several years’ worth of donations in a single year. This is called “bundling,” and there are a couple of ways the DCF can help you with this.

One way is to open a non-endowed donor advised fund. In this case, you would make a single larger gift – if you usually give $10,000 a year in gifts to various charities, say you give $30,000 to the fund. You immediately have a $30,000 tax deduction, exceeding the $24,000 standard deduction, so now it makes sense to itemize. Over the next three years, you give the $30,000 in the fund to the charities you want to support.

The best way is to establish an endowed donor advised fund at the DCF with a single large gift. You still take the tax deduction immediately on the entire amount you give. Then every year, you give away a portion of the earnings from that fund, without spending the principal. This allows the fund to grow and generate money for you to give as grants forever.

For example, if you establish an endowed donor advised fund with a one-time gift of $30,000, you could give away approximately $1,500 each year, forever. (The current payout rate is 5 percent of the fund’s balance.) Even after your lifetime ends, you can have the DCF or a loved one to continue to direct that money to charitable causes you care about.

We know people give to charity because they want to, not for the tax deductions. But if leveraging deductions enables you to give more powerfully, why not? Talk to us about how we can help you make your giving more powerful.

Contact Joan Hoge-North at 302.504.5224.