When is it most effective to use the bunching strategy?


The bunching strategy is most effective when you have a significant increase in your taxable income, such as a large bonus, stock sale, crypto gain, or inheritance. It's also a great option if you're close to being able to itemize your tax deductions or if you want to make a large donation to a charity or cause you care about. Daffy is an excellent platform for implementing the bunching strategy. For instance, let's consider Leah, a salesperson who received a $50,000 commission bonus. She 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. Leah doesn't have to give the money to any charities yet; instead, 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. In conclusion, Daffy is a great option for a Donor-Advised Fund (DAF) as it allows you to maximize your tax savings by bunching charitable donations. It's a smart strategy for those who give to charity regularly and want to make the most of their contributions.

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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