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Bundling charitable gifts may help you claim a deduction after tax changes

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      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 - There are a lot of questions this tax season about how the changes to the tax code could impact the ability to deduct charitable contributions. Although fewer taxpayers will itemize due to rising standard deductions, one way to maximize your tax savings is to bundle several years' worth of charitable deductions into a single year.

      The Tax Cuts and Jobs Act of 2017 stripped or limited many deductions from the tax code, while also nearly doubling the standard deduction in 2018 -- to $12,000 for singles and $24,000 for joint filers.

      Bundling charitable deductions 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.

      It's also important to remember that if you didn't bundle your deductions in 2018, you can still use this approach for 2019.

      Bundling contributions with donor advised funds

      To illustrate a hypothetical example of bundling, instead of donating $2,000 a year for five years, a married couple filing jointly could make five years' worth of contributions ($10,000) in a single year.

      In that case, their 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 couple would incur a net outlay of $7,200 ($10,000-$2,800), instead of the net outlay of zero had they 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, taxpayers could consider combining this strategy with 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 maximize their tax savings/benefits in a single year where the DAF can distribute gifts over time while in subsequent years take the higher standard deductions. If you didn't take advantage of bundling your deductions with a DAF in 2018. You may want to consider using this strategy with your charitable giving in 2019. 2019 standard deductions are $12,200 for individuals and $24,400 joint filers.