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Friday, May 24, 2024

How I Created My Personal Charitable Giving Plan: The Remaining Set up (Most likely)


Two main iterations (and a number of other years) later, my charitable plan is lastly the place I need it to be. That mentioned, even my authentic plan was ok because it was! In any case, the charities have been nonetheless getting our cash, and that’s the entire level. So, please, if there’s one lesson you’re taking away from my “journey,” let or not it’s: Simply Begin Someplace.

Three years in the past, I wrote about creating my very own charitable giving technique. Two years later, I gave you an replace (“Now with a Donor Suggested Fund!”). I’m again, for the final time (for some time a minimum of), to inform you about my ultimate iteration on my household’s charitable plan.

As I wrote this weblog submit, I noticed that I used to be writing it much less to offer you particular concepts in your charitable plan (although for those who get these, too, yay!), and extra to encourage you to simply begin giving cash in some style. Earlier than our household’s preliminary charitable plan, we gave arbitrarily. Which was (a lot) higher than nothing. Even our preliminary plan, as documented in that first weblog submit, wasn’t full, however it was structured and intentional. I figured I may add extra “finesse” later, and lo! I’ve!

You may at all times and endlessly iterate in your charitable plan, irrespective of how small or ill-formed (or non-existent) it’s. It’s similar to that first draft of a school paper. So intimidating! However for those who notice that you would be able to at all times revise, it doesn’t matter what model you’re on, it’d assist you recover from your concern of that clean web page (or non-existent charitable plan).

What I Did in 2023

In 2023, my husband and I, once more, gave:

  • 10% of our 2022 Adjusted Gross Earnings
  • within the type of shares of a US inventory fund. We’d owned these shares since 2011, so that they’d grown by a big share, which implies we prevented plenty of taxes on these massive beneficial properties by donating as an alternative of promoting them! (as described in my first weblog submit about this)
  • to our Donor Suggested Fund (as described in the second weblog submit).

Except for the executive nightmare (!! significantly, WTF) of transferring investments in a Vanguard brokerage account to a Donor Suggested Fund at Constancy, this technique served us effectively once more. (I would truly attempt transferring the shares from our Vanguard brokerage account to our (empty) Constancy brokerage account subsequent time, whence into the Constancy DAF simply to see if that makes the cash actions simpler.)

So, what else is there left to do? I can consider just one factor:

“Bunching” Donations to Maximize Tax Deductions Over A number of Years

In 2023, we donated sufficient in order that, together with different itemized deductions, it was worthwhile to itemize our deductions in our 2023 taxes as an alternative of taking the usual deduction. The usual deduction for us in 2023 was $27,700 (for a married couple submitting collectively, i.e., me and my husband).

With our charitable contributions (let’s say $30,000), our complete itemized deductions have been increased than that (let’s say $40,000). Which suggests we saved extra in taxes by itemizing our deductions as an alternative of taking the (decrease) customary deduction.

There’s nonetheless one enchancment left to make: bunching donations, i.e., making a number of years’ price of charitable donations in a single yr, and making no donations in these different years.

First, let’s see what is going to occur to our taxes if we proceed donating to charity (in our case, our Donor Suggested Fund) yearly. The usual deduction (for us) in 2024 is $29,200. For simplicity’s sake, let’s assume it and the quantity we donate ($30,000) keep the identical for 3 years. That implies that yearly, we’d find yourself itemizing our deductions, as a result of the usual deduction is decrease.

We’d donate a complete of $90,000 to charity over three years and have a complete of $120,000 of itemized deductions over these three years. At a 35% federal tax charge, we’d save $42,000 in federal taxes because of our deductions.

However you realize what we’re doing right here? We’re losing the $29,200 in customary deductions that the federal authorities simply offers to us. Bunching permits us to make use of these deductions whereas not shedding the larger impression of our itemized deductions.

To bunch, we might give $90,000 in a single yr and nothing within the different two years, for a similar complete donation of $90,000 over three years. However now see what occurs to the whole quantity of deductions over these three years (it’s greater), and what occurs to the tax financial savings we get (additionally greater):

It’s kinda like magic. You give the very same sum of money to charity, but you get extra deductions and due to this fact extra tax financial savings.

Pulling It All Collectively: My Total Charitable Giving Plan

Right here, then, is my household’s charitable plan going ahead:

  1. In three years (so, in 2026), we add up that 10% of Adjusted Gross Earnings (from our tax returns) from every of the final three years (2023, 2024, 2025).
  2. We donate that sum of money (three years’ price) to our Donor Suggested Fund.
  3. We donate appreciated inventory, not money.
  4. We determine what causes we care about.
  5. We determine the organizations we predict can finest assist these causes.
  6. MOST IMPORTANT STEP We distribute the cash from the Donor Suggested Fund to the recognized charities over the course of the yr (or three).
  7. We don’t donate something to our DAF for an additional two years.
  8. On the third yr, begin once more.

I can see us tweaking the small print (donating 5% as an alternative of 10% of our annual revenue; bunching each two years as an alternative of each three), however the course of stays the identical.

I hope I’ve impressed you to make only one change, for the higher, to your individual charitable giving plan. 

[ETA 4/12/2024: Inspired by favorite family friend, Taylor, who is in his 80s, I feel the need to add: There are other tax-minimizing charitable giving opportunities that open up once you’re 70 1/2 years old, notably Qualified Charitable Donations. QCDs probably don’t fit well into the “bunching” idea. I write for the younger person, but hey, if you’ve got parents that old, who are charitably inclined, be sure to mention QCDs to them!]

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