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The power of planning: bundling, bunching and bequests

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The significant community needs arising from the events of 2020, coupled with recent tax law changes, make it even more important to help your clients plan their charitable giving strategies.

For the last couple of years, your clients likely have been hearing about a tax-efficient charitable giving strategy called "bundling" or "bunching." The popularity of this tool increased significantly under the Tax Cuts and Jobs Act provisions that reduced the incentive for taxpayers to itemize deductions on their income tax returns, starting with tax year 2018, because of the now doubled standard deduction. In other words, your clients now have to give a lot more to charity to reap the tax benefits. 

"Bundling" or "bunching" can involve using a donor-advised fund to separate the tax event of the charitable gift itself from the financial support of charities. Because contributions to a donor-advised fund at the community foundation are immediately deductible for tax purposes – but not required to be granted out of the fund to charities right away – your clients can "frontload" donations into a donor-advised fund at a level where they will be able to take advantage of itemizing deductions. Then, your client can recommend grants from the donor-advised fund to their favorite charities according to the timeframe that aligns with their targets for providing philanthropic support to community organizations. 

This "bunching" strategy can be used with other charitable funds at Akron Community Foundation, too, including designated and scholarship funds. And as an added bonus, under the CARES Act, individuals who itemize deductions can elect to deduct donations up to 100% of their 2020 adjusted gross income instead of being capped at 60%. For corporations, the CARES Act increased the cap from 10% to 25% of taxable income. Although the CARES Act provisions do not apply to donor-advised funds, community foundations are qualified public charities and gifts to scholarship, designated, agency endowment and other fund types are eligible.

Finally, as you are assisting your clients with their charitable plans, don't forget about bequests! A recent report issued by FreeWill cites a 400% increase in the number of wills with bequests in March 2020 compared with March 2019. Encourage your clients to think about their legacies, especially as they reflect on the ways 2020 has put a spotlight on just how important it is for communities to be able to rely on sustainable nonprofit organizations to help people in need.

To learn more, contact Laura Lederer, senior director of development and advisor relations, at 330-436-5611 or llederer@akroncf.org.

Additional Resources

This content is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

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