What is a practical example of how donation bunching works?


Donation bunching is a tax strategy that allows you to maximize your tax savings by grouping your charitable contributions for multiple years into a single year. This allows you to itemize your tax deductions in one year and take the standard deduction in other years. For example, let's consider Leah, a salesperson at a major software company. She received a $50,000 commission bonus and wants to donate to her favorite non-profits. However, she also wants to save on her taxes. This is where Daffy, a Donor-Advised Fund (DAF), comes in. Leah uses Daffy to make a $10,000 contribution from her bonus. This might seem like a lot, but over two years, it amounts to just over $400 each month. The beauty of Daffy is that Leah doesn't have to give the money to any charities yet. She can invest those funds with tax-free growth and spread her contributions out over the next two or three years. On the tax front, Leah’s $10,000 charitable contribution, paired with the $5,000 she’ll pay in mortgage interest on her condo, puts her well above the standard deduction. In fact, she’ll get to deduct an extra $2,000 from her taxable income while also making a difference in the world. Bunching charitable contributions isn’t right for everyone, but it can make a lot of sense for some people, especially when you have extra income. Daffy makes this process easy and efficient, allowing you to maximize your tax savings while supporting the causes you care about.

Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.

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