This is the archive of CPA Now blogs posted on the PICPA website through April 30, 2025. Want more recent blogs?

Read current blogs

By Jim DeLuccia, manager, PICPA communications team

In the first part of this two-part blog on charitable gift planning, Marsha Rubin, CPA, CFP, a financial adviser with Wharton Investment Consultants in Wilmington, Del., discussed charitable gifting under the Tax Cuts and Jobs Act of 2017. Specifically, she addressed qualified charitable distribution planning opportunities for those older than 70 ½. In this second and final part, Rubin addresses my questions regarding the options available for those younger than 70 ½, particularly the potential use of private foundations.

Marsha Rubin, CPA, CFP Financial Adviser Wharton Investment Consultants

PICPA: Do you have any tax-saving ideas for those younger than 70 ½, considering the likelihood of reduced itemizing of deductions due to the Tax Cuts and Jobs Act? I've heard about bunching from you in one of our recent Personal Financial Planning Committee meetings. Would that be an option?

Rubin: Bunching is popular in the news right now, and it is a straightforward concept. It's effective for people who are close to itemizing – on the borderline between itemizing and taking the standard deduction. One recommendation for these clients is to bunch anticipated charitable contributions of two to three years into one year. You would make a very large charitable contribution this year, then not take any the next year and maybe the year after that. You would then itemize one out of every two or three years.

There's an extreme bunching program (my term!) called donor-advised funds. This is when you give money to a custodian of an IRS-qualified charity; it's really not a charity, as they are more like middlemen. It's usually custodians that set up these donor-advised funds, but, in effect, they are called a charity. It could be with Schwab, or Vanguard … just about every brokerage firm has one.

You don't have to contribute a lot, which makes them very popular. You get an immediate tax deduction for whatever you put into the donor-advised fund, and you don't have to give the money to a charity immediately. These middlemen hold the money with the understanding – and the full law of intent behind them – that this money is going to charity; it just hasn't been disbursed yet. You could set up a donor-advised contribution in December, and not have given a dollar to a charity by the end of the year; but you would get an itemized deduction for the full amount that you put into the donor-advised fund. If you had the means, you could put 10 years’ worth of charitable contributions into one of these, and then parcel out contributions over 10 years – but they must be given to IRS-qualified charities, like 501(c)(3) organizations. It's a great planning technique for clients who suddenly realize at the end of the year that they will have a tax problem.

For example, I had a client who came into a lot of retirement money the year that she retired. She didn't realize she had a lot of deferred compensation that she had signed up to receive in the year she retired. She didn't remember that she had made that choice years earlier, and was surprised to discover a huge amount of deferred compensation upon retirement. We put quite a bit of money into a donor-advised fund. She got a nice tax deduction that year, and has many years ahead of her to give that money to charity. There's no minimum that has to be distributed each year out of these funds.

How do private foundations differ from donor-advised funds?

Private foundations require a minimum distribution of 5 percent of the fund balance every year. Private foundations are similar to donor-advised funds, but they are usually set up by an individual or family. Typically, there's a substantial amount of money distributed to that private foundation because there are substantial costs involved in running one. They have a board of directors or board of trustees, and they are responsible for receiving and managing the contributions. Additionally, they invest the assets or hire somebody to invest the assets for the grants to charities. That can be a downside to private foundations.

The upside is that you don't have to give just to 501(c)(3) charities. You can give to individuals. However, whomever you give the money to, it has to be with charitable intent. A lot depends on how the bylaws are written in the private foundation. You'll typically see this form of organization used with high-net-worth families who are trying to teach generations about charitable giving, and it becomes a family legacy.