Advisory Blog
Bundling charitable deductions may yield significant tax savings

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

  • All Posts
  • More
    Topics
      Authors
      The article below is presented as a single post. Click here to view all posts.

      By Dan R. Strelow, CFA, CIPM, Portfolio Manager, Global Income Group, Eaton Vance Management and Eileen Tam, Product Manager Wealth Strategies Group, Eaton Vance

      Boston - The U.S. Congress has recently stripped so many miscellaneous deductions from the tax code that many individuals are grappling for ways to reduce their taxable income. Although the Tax Cuts and Jobs Act of 2017 nearly doubles the standard deduction in 2018 -- to $12,000 for singles and $24,000 for joint filers younger than age 65 -- it caps or eliminates many other valuable deductions.

      One tax-advantaged approach would be to bunch years' worth of charitable deductions into a single year. This strategy can help individuals accumulate enough itemized deductions to exceed the standard deduction for one year, and then claim the standard deduction in the years when the donations are dispersed to charities.

      Bundling contributions with donor advised funds

      Bundling a number of years' charitable contributions into a single year allows a taxpayer to exceed the standard deduction in that year and receive a tax benefit. For instance, instead of donating $2,000 a year for five years, the taxpayer in the above example could make five years' worth of contributions ($10,000) in a single year.

      In that case, his itemized deductions would total $32,000 ($12,000 mortgage + $10,000 state tax + $10,000 charitable), exceeding the standard deduction of $24,000 by $8,000 (see the figure below). Assuming a 35% marginal tax rate, this $8,000 additional deduction would produce $2,800 in tax savings. Thus, the taxpayer would incur a net outlay of $7,200 ($10,000-$2,800), instead of the net outlay of $10,000 had he contributed $2,000 per year for five years.

      Blog Image Charitable Giving Oct 4

      Taxpayers considering this bundling might not want their charities to receive five years' worth of contributions at once, or they might wish to change the charitable recipients in future years. To meet these concerns, the taxpayer could consider establishing a "donor advised fund" (DAF). Contributions to a DAF are deductible when made. But, the DAF is not required to distribute the proceeds to charities immediately.

      Instead, the DAF could dole out the funds in succeeding years. (Of course, the taxpayer does not receive a second deduction when the DAF distributes the funds.) The taxpayer even can change the charitable entities that receive the DAF disbursements along the way.

      Bottom line: Bundling charitable deductions using a DAF allows investors to lower their taxable income and donate to charity for years to come.