January 21, 2022

A savvy way you can give more to charity, pay less in taxes

Under the Tax Cuts and Jobs Act of 2017 (TCJA), the standard deduction available to taxpayers increased substantially. However, for taxpayers who choose to itemize their deductions, TCJA limited or discontinued certain previously deductible expenses, such as state and local income, sales, and property taxes and charitable deductions. One work-around is to accelerate your charitable giving using a donor-advised fund.

Potential advantages of using a donor-advised fund

This hypothetical example assumes that the persons involved are single; that they take the standard deduction for federal income taxes, except in the first year for the person who donates $50,000 to a donor-advised fund; and that the money in the donor-advised fund grows at a projected rate of 6% a year.1 Each person then makes a $10,000 charitable donation a year for the first four years. However, the person who initially contributed to the donor-advised fund makes a $16,753 charitable donation in the fifth year as a result of the fund’s capital appreciation. (Any taxes saved on capital gains realized by donating appreciated securities or property are in addition to any tax savings shown below.)