This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

The Dunham Donor-Advised Fund offers various strategies to reduce taxable income and increase ways for you to leave a positive impact for your family to follow. The concept of charitable bunching may allow you to increase your tax savings by contributing multiple years of charitable deductions in one year.

Charitable bunching is aimed at tax years where you may have an unusual amount of taxable income that is not likely to reoccur in future years. In the event that this occurs, a charitably-minded taxpayer would simply shift the timing of their deductible charitable expenses by bunching them together within the same tax year.

Using the Dunham Donor-Advised Fund, you can make multiple-year contributions into the fund, receive an immediate tax deduction, and decide how and when your charitable gifts will be distributed over the course of many years.

Bunching: A Smart Way to Maximize Your Family's Charitable Deductions

In addition, those contributions can compound tax-free for years before being distributed to a specific charity. This can mean more significant contributions in future years.

As you will see in our case study, it can also be used when you are not receiving the full tax benefits your generosity should be providing to you and your family.

Case Study

A married couple and their young children donate $10,000 a year to various charities they select as a family. Their contributions not only benefits the organizations they contribute to, but also gives them the ability to itemize their deductions above the $25,100 standard deductions for married couples filing jointly:

As you see from the numbers above, their deductions are their state and local taxes (SALT) that the IRS caps at $10,000 a year and $6,000 in mortgage interest. When they add their $10,000 in charitable contributions, they can now itemize their deductions as their philanthropic contributions give them total deductions of $26,000.

However, the standard deduction for a married couple is $25,100. This means that although they are donating $10,000 a year, they are only receiving a $900 additional deduction ($26,000 itemized deductions minus the $25,100 standard deduction).

They are in a 40% tax bracket, which means they have a $360 tax saving above the standard deduction of $25,100. Over a five year period, this would be $1,800 of tax savings ($360 x 5 years = $1,800).

Their financial advisor suggests they consider the Dunham Donor-Advised Fund and bunch five years of contributions into the fund. In a donor-advised fund, they decide when to make their charitable bequeaths so they can still donate $10,000 a year to their charities.

However, now their tax picture looks much different.

They still have the $10,000 deduction for the state and local taxes and the $6,000 for their mortgage interest. By placing five years of $10,000 contributions in their Dunham Donor-Advised Fund, they now have an additional $50,000 of charitable deductions they can use immediately for the tax year they donated.

Their tax numbers now line up as follows:

Remember, the standard deduction is $25,100 for a married couple. Their new itemized deductions are now $40,900 more than the standard deduction. At a 40% tax bracket, they have a tax savings of $16,360 compared to the $1,800 they would have had over five years.

In the next four years, they will still claim the standard deduction of $25,100, and they will allocate

the same $10,000 a year to their favorite charities.

Their financial advisor’s recommendation of bunching made sense in their situation. Since charitable giving was an essential part of their family’s financial plan, charitable bunching effectively unlocked extra deductions.

As the money in the Dunham Donor-Advised Fund awaits their philanthropic contributions, it has the potential to keep growing. The couple’s financial advisor will continue to invest the funds according to their growth and risk parameters.

To learn more, speak to your financial advisor. They will explain what options might be ideal for you and your family’s individual situation.

Find out how the Dunham Donor-Advised Fund can help you leave a positive impact for your family to follow.

(1) Please remember that there are annual income tax deduction limits for gifts made to public charities, including donor-advised funds. For contributions of non-cash assets held more than one year, like the hypothetical situation above, is 30% of adjusted gross income (AGI) for the tax year of the gift. It is 60% of AGI for contributions of cash. You may carry over donation amounts in excess of these deductions for up to five tax years.

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Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Dunham does not provide legal or tax advice. Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Dunham cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

All financial decisions and investments involve risk, including possible loss of principal.

Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

A donor advised fund is a separately identified account that is maintained and operated by a section 501( c) (3) organization, and is not a registered investment company.

The Dunham DAF is powered by University Impact, a registered 501(c)3 nonprofit in the United States. University Impact is the DAF host who manages all aspects of the fund.

Contributions to the Dunham Donor-Advised Fund are irrevocable contributions made to University Impact a public charity. Individuals considering a contribution to the Dunham Donor-Advised Fund should consult their legal and tax advisors regarding deductions, based on their personal considerations.

The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. Dunham does not provide legal or tax advice. Content provided relates to taxation at the federal level. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Always consult an attorney or tax professional regarding your specific legal or tax situation. We encourage you to seek from qualified professionals regarding all, personal finance issues.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Advisor and Broker/Dealer. Member FINRA/ SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc

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