This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

Many Advisors Miss This Powerful Charitable Tax Strategy

Imagine hosting a shredding event for your clients. One client pulls up, trunk brimming with those black garbage bags filled with cash. You watch in horror as they hand those bags to the shredding service

Now imagine the same scenario applied to charitable contributions. This is what happens when clients do not take full advantage of tax-efficient strategies. With the rise in the standard deduction, fewer clients benefit from itemizing their charitable contributions, which means they miss significant tax savings while striving to support meaningful causes.

The Issue: Standard Deductions Limit Charitable Tax Benefits

For married couples filing jointly, the standard deduction in 2024 is $29,200. If your client is charitably inclined, you may find their itemized deductions barely exceed this amount, even when combining their:

  • State and local taxes, capped at $10,000
  • Mortgage interest payments
  • Charitable contributions

Most clients who do not have significant business expenses to deduct or medical expenses exceeding 7.5% of adjusted gross income(1) may find their total itemized deductions are often below or just slightly more than the standard deduction, limiting their tax benefits from charitable giving.

Let us look at a hypothetical example.

A couple has state and local tax deductions capped at $10,000, mortgage interest of $10,000, and they make $10,000 in charitable contributions. Their total itemized deductions of $30,000 exceed the standard deduction by only $800, resulting in minimal tax benefit. The situation becomes even more pronounced in 2025 when the standard deduction increases to $30,000 for married couples filing jointly.

Source: Dunham 2024, for illustrative purposes only

Combining the Dunham Donor-Advised Fund With Bunching

A Dunham Donor Advised Fund works like a charitable investment account. Your client makes a single, large contribution to the fund and receives an immediate tax deduction for the full amount. The potential earnings and returns on the fund then grow tax-free within the account while your client maintains control over when and where to distribute these funds to charities.

With the concept of “bunching”, your client makes multiple years of charitable giving into a single tax year by contributing to the Dunham Donor Advised Fund. This strategy could prove particularly effective because your client can maintain their regular pattern of charitable support through the fund while optimizing their tax benefits.

Bunching In Action

Instead of giving $10,000 annually directly to charities, your client bunches five years of charitable contributions for a total of $50,000 into the Dunham Donor Advised Fund in 2024. Here is how the numbers work: 

Source: Dunham 2024, for illustrative purposes only

The Benefits Can Be Substantial

The bunching creates benefits beyond the tax deduction, such as:

  1. Providing $14,280 in tax savings in 2024, compared to just $280 with the traditional approach.
  2. Your client continues to benefit from the full standard deduction in subsequent years while maintaining their charitable giving through the Dunham Donor Advised Fund. The standard deduction for 2025 is $30,000.
  3. The Dunham Donor Advised Fund grows tax-free, potentially providing even more funds for charitable giving.
  4. Charities continue receiving steady support of $10,000 annually, unaffected by the tax strategy.
  5. The Dunham Donor Advised Fund can become part of a broader charitable legacy strategy.

Super Sizing Tax Benefits with Appreciated Assets

Contributing highly appreciated assets to the Dunham Donor Advised Fund creates a powerful double tax benefit:

  • No Capital Gains Tax: Avoid taxes on the appreciation of assets.
  • Full Deduction: Claim a deduction for the fair market value of the securities.

For example, let us assume your client is holding stock with a $20,000 cost basis now worth $50,000. By contributing the stock directly to the fund, they avoid paying capital gains tax on the $30,000 appreciation. At a 20% capital gains rate, a 5% state tax, plus the 3.8% Medicare tax, this saves $8,640 in capital gains taxes. Additionally, they receive a $50,000 charitable deduction.

Understanding AGI Limitations and Carryforwards

The IRS allows a 100% tax deduction for charitable contributions to a charity including a Donor Advised Fund. However, how much of this deduction your client can use in a single year is limited by their adjusted gross income (AGI). In 2024, cash contributions are limited to 60% of AGI, while appreciated securities held longer than one year are limited to 30% of AGI.

Any unused deduction amount exceeding these AGI limitations carries forward for up to five additional tax years, subject to the same AGI limitations each year. This carryforward provision makes bunching multiple years of charitable giving into a single tax year particularly powerful for tax planning.

The Four Pillars of the Dunham Donor Advised Fund

Bunching charitable contributions presents a powerful tax planning strategy that maximizes deductions while maintaining consistent philanthropic giving. When executed through the Dunham Donor Advised Fund, this strategy becomes even more impactful through the four pillars of Dunham's advantages.

  1. Accept Diverse Assets: The Dunham Donor Advised Fund accepts diverse assets beyond cash and publicly traded securities. This flexibility allows clients to maximize their tax benefits by contributing complex assets such as privately held business interests, real estate, collectibles, or other appreciated property.
  2. Cost Efficiency: The Dunham Donor Advised Fund's competitive administrative fee structure ensures that more dollars remain available for charitable giving. Lower administrative costs translate directly into increased charitable impact, allowing clients to direct more resources to their chosen causes.
  3. Increased Philanthropic Reach: The Dunham Donor Advised Fund opens doors to a broader charitable giving opportunity. Your client can donate to international charitable organizations and for-profit impact companies, expanding their philanthropic reach beyond traditional donor advised funds. This wider range of giving options enables your client to create a more diverse and meaningful charitable impact.
  4. Your Client’s Fully Staffed Backoffice: The Dunham Donor Advised Fund functions as your client’s fully staffed family foundation back office without the administrative burden. The professional team handles all compliance and administrative requirements, IRS reporting, and, at your client’s request, will perform due diligence on charities and impact companies. This comprehensive support lets your client focus on their charitable mission while the fund manages the operational complexities.


Closing Thoughts

Combining strategic bunching with the Dunham Donor Advised Fund creates a sophisticated philanthropic solution. Your clients maximize their tax benefits, maintain control over their charitable giving, access professional investment management, and receive comprehensive administrative support while potentially increasing their charitable impact through tax savings and investment growth. This powerful partnership between tax strategy and philanthropic tools represents an opportunity for advisors to deliver significant value to their charitably inclined clients.

For marketing material, including a customizable case study on this strategy, please contact the Dunham Business Development Team at 9858) 964 – 0500.

Sources:

  1. Topic No. 502, Medical and Dental Expenses, by the IRS, last updated September 26, 2024, https://www.irs.gov/taxtopics/tc502

Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.

Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This document is provided for information purposes only and should not be considered as investment advice.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

A donor advised fund (“DAF”) is a separately identified account that is maintained and operated by a section 501(c)(3) organization and is not a registered investment company.

The Dunham DAF is powered by University Impact (“UI”), a registered 501(c)(3) nonprofit in the United States who manages the charitable aspects of the Dunham DAF.

UI charges fees to the Dunham DAF for administrative services in accordance with the Fee Schedule as outlined in Appendix A of the UI Donor Advised Fund Agreement (“Agreement”). Accounts are required to maintain a $1,000 minimum balance and are subject to support investment fees as explained in the Agreement. A list of current fees and initial gift minimums is available upon request. UI reserves the right to change its fee or minimum policies at any time. There may be additional fees charged by the Financial Advisor that are separate from UI’s administrative and impact investment fees.

Contributions to the Dunham DAF are irrevocable contributions made to UI, a public charity.

Assets contributed to the Dunham DAF (once liquidated, if applicable) will be invested in the Dunham Asset Allocation Program sponsored by Dunham & Associates Investment Counsel, Inc., a Registered Investment Adviser and Broker/ Dealer. Member FINRA/ SIPC. Dunham Trust Company and Dunham & Associates Investment Counsel, Inc. are affiliated entities.

All financial decisions and investments involve risk, including possible loss of principal. The market value of the Dunham Donor Advised Fund is not guaranteed by UI and may fluctuate depending upon investment results. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

Investment allocations may be changed according to Dunham’s standard policies and procedures. UI may hold up to 5% of the Dunham DAF assets in non-interest bearing cash at any time.

As the Program Sponsor, Dunham charges each donor a single service program fee (“Program Fee”) not exceeding 0.25%.

In addition, a Financial Advisor may charge a client/donor an asset-based advisory fee (“Advisory Fee”) as specified in the Advisory Agreement. Detailed advisory and expense fee information about the Dunham Asset Allocation Program is available in the Wrap Fee Program Brochure available upon request.

As investment adviser to the Dunham Funds, Dunham receives the investment advisory compensation described in the Dunham Funds’ prospectuses and such fees are borne by all shareholders in the Dunham Funds, including the donor.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.

SUBSCRIBE TO
THE DUNHAM BLOG