Donating Regularly to Charity But Not Itemizing? A Tax-Smart Giving Strategy You Should Know

The Daffy Team

· 3 min read

Ever since the 2017 Tax Cut & Jobs Act, the standard deduction for taxpayers has increased significantly. While that means bigger tax relief for some, it also means that most people don’t have enough charitable donations to clear the standard deduction. If that’s you, you are certainly not alone.

Fortunately, there is a tax-smart strategy you can use to take advantage of the higher standard deduction and deduct your charitable contributions.

When to take the standard deduction and when to itemize

If you're unsure whether to take the standard deduction or itemize, here's the deal: you can't claim charitable donations unless you itemize. To shave off some dollars from your taxable income this year, you must have more deductions than the standard amount for your tax filing status.

For instance, in 2023, the standard deduction is $13,850 for single taxpayers and $27,700 for those who are married and filing jointly. These numbers are high, so it’s fair to assume that it may be impossible to include your charitable giving in your tax strategy. However, with proper planning and consideration of all available deductions, including your charitable donations can still be a viable tax strategy.

How to exceed the standard deduction and maximize your tax deductions

In order to exceed the standard deduction, you need to have enough itemized deductions in a single tax year. Beyond charitable contributions, the most common itemized deductions include home mortgage interest, medical and dental expenses, and property taxes.

However, if you add up all of those expenses and are still having trouble exceeding the standard deduction, there's a smart tax strategy called "bunching" that can help you out.

Bunching involves grouping multiple years' worth of itemized deductions into a single tax year so you can exceed the standard deduction for that year. Just be sure that your cash contributions don't exceed the charitable contributions 2023 limit of 60% of your adjusted gross income.

By using the bunching strategy, you can claim your itemized deductions in the year in which they are bunched and take the standard deduction in other years. This allows you to maximize your tax savings without reducing the amount you give to charity.

How bunching charitable deductions could save you 30% on your tax bill

Here's a hypothetical scenario to show how bunching can work in real life. Suppose Jamie, a single taxpayer who typically donates $6,000 to charity every year, decides to bunch their donations. Instead of making three separate $6,000 donations in 2023, 2024, and 2025, they make one lump sum donation of $18,000 in 2023. The new total for itemized deductions is $18,000, which far exceeds the 2023 standard deduction of $13,850.

Assuming Jamie is in the 24% tax bracket, they can increase their federal tax savings by 30%, which means they will have an additional $1,000. And if Jamie chooses to invest the funds in a tax-free donor-advised fund like Daffy, this will allow them to continue making $6,000 donations for three years, with an opportunity to be even more generous as their fund grows over time.

Donor-advised funds like Daffy make it easy to bunch

Donor-advised funds (DAFs), such as Daffy, are a great tool to simplify the bunching strategy. Similar to an IRA or 401(k) DAFs are tax-advantaged accounts for the sole purpose of giving.

You can fund your DAF with a larger amount in one tax year, claim your full deduction in that year, and then use your fund to support your favorite causes over multiple years. Plus, you’ll have funds on hand to donate to time-sensitive issues you care about as they arise. And in the meantime, your charitable account will be invested and grow tax-free.

And if you want a modern, donor-advised fund that has very low fees, Daffy makes it easy to get started. So if you’re ready to save more on your taxes and have more to support your favorite charities, join Daffy today.

Please note that the information contained on this page is for educational purposes only and should not be considered tax or investment 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 situation, please consult with a tax and/or investment professional.