Batching Donations

Batching donations so that you make larger donations less frequently can save you time compared to making frequent small donations. A huge reason to batch donations is to save taxes. To understand the benefit, I need to briefly explain the standard deduction and itemized deductions on personal tax returns. As I mentioned in an earlier lecture, you have two choices for deductions on us personal tax returns the standard deduction, which is a flat dollar amount based on your filing status, or by listing all your eligible deductions, which is called itemizing your deductions. you itemize your deductions if their total is higher than your standard deduction. Let’s say you give $10,000 per year to organizations and that’s the only deduction you have each year. For this example, we’ll assume your standard deduction is $25,000. Remember that you want to take the larger of your standard deduction or your itemized deductions each year. If you give $10,000 each year, you would always take the standard deduction of $25,000 rather than The $10,000 donation deduction. Now let’s assume that instead of giving $10,000 each year, you give $30,000 every three years. Now, one year out of three, you will take the itemized deduction of $30,000 because it’s higher than the standard deduction of $25,000. In the other years, you would still take the $25,000 standard deduction. You’ve increased your deductions over the three years by $5,000. This is a tax strategy called batching. deductions. What if you would rather make regular small donations to organizations rather than one infrequent gift like I talked about earlier, that’s where a donor advised fund comes in handy. You can make the $30,000 donation to the donor advised fund and then distribute $10,000 per year to the organization’s remember that you get the tax deduction when you make the donation to the donor advised fund. You’ve also reduced the number of receipts you have to keep because all your donations are to the donor advised fund and you’re just making it once every three years. You can make just one donation of the example $30,000 in one year, or you can make multiple nations to the donor advised fund in one year, the total $30,000. One reason you may give a large amount is because you have stocks or other investments that are currently worth much more than you paid for them. If you’re concerned that their value may go down, you can donate those investments all in the current year to get those tax deductions and avoid the capital gains tax. I discussed this earlier in the lecture on taxation. Once again, a donor advised fund makes donating investments easy and allows you to spread the distributions over many years.