The Tax Cuts and Jobs Act of 2017 (TCIA) nearly doubled the standard deduction and eliminated the need to itemize deductions for most taxpayers. Although charitable donations to qualified nonprofits and foundations are still permitted as itemized deductions under the TCIA, many people will file their taxes using the standard deduction of $12,200 for individuals and $24,400 for a married couple. The exception to taking the standardized deduction is if your combined charitable contributions, mortgage interest, medical deductions, and state and local taxes are greater than the permitted deduction amounts.
As you start to think about your year-end charitable contributions, you might consider what is called “bunching” your donations by the end of December. Bunching enables you to concentrate your deductions in a single year, then skip your donations for a year or two. That strategy can work well for taxpayers whose total itemized deductions in one year fall below the 2019 standard deduction amount and who have the financial capacity to be able to make multiple years of charitable donations all in one year.
Here’s how bunching could work: Let’s assume that a Sonoma Valley couple makes $10,000 per year in charitable donations and files their taxes jointly. Let’s also assume that the total sum of this couple’s itemized deductions, including their usual $10,000 in charitable donations, equals $25,000, putting them at $600 above the standard deduction amount. At the 35% tax bracket, that would give the couple $210 in tax savings if they itemize. However, if that same couple bunches three years of charitable donations into one year, they would exceed the standard deduction by $20,600. This bunching would result in saving the couple a total of $7,210 on taxes, an amount that’s $6,580 more than they would save if they took the standard deduction.
You may elect to use the bunching strategy but decide that you don’t want to give two or three years of contributions all in one year. In that case, you can contribute several years of contributions to a donor-advised fund. You can set up a donor-advised fund through a financial brokerage, wealth management firm, or through a community foundation, including Community Foundation Sonoma County and its local affiliate, the Sonoma Valley Fund.
There is often a minimum investment required, generally between $5,000 and $10,000. Once your tax-deductible funds are in a donor-advised fund, you can determine what charities you wish to support, when you want the charities to receive your gifts, and the dollar amount of each gift.
Our Sonoma Valley nonprofits need your support and you may need a tax deduction. Check with your CPA or financial advisor to see if bunching this month is a good way to increase your tax deductions while supporting local nonprofits. Whether you bunch or not, please give generously to your favorite Sonoma Valley nonprofits during this holiday season.
B.J. Bischoff is the owner of Bischoff Performance Improvement Consulting, a Sonoma firm specializing in building the capacity of nonprofit organizations and public sector agencies. She assists her clients with strategic planning, board and staff training, fund development, grant writing, and community relations. She is Past President of Impact100 Sonoma and serves as a Sonoma County Board of Supervisors’ appointee to the Sonoma County Portfolio of Model Upstream Programs Review Committee, which she chairs. [email protected]