How to think about your taxes like you think about your credit card points

Spend hours thinking through how to maximize your credit card perks? You could be doing the same thing with your donation dollars. With some upfront thinking and strategizing, you can save on taxes while doing good in the world.

  1. Taxable Income = Income — Nontaxable Income, so increasing your non-taxable income (like donations) decreases your tax burden

  2. In order for your donations to be factored into your non-taxable income, you have to exceed the “standard deduction” amount

  3. The standard deduction amount doubled in 2019 due to new tax policy, but the saavy tax payers are using bunching strategies to make their donations count

Let’s get to it:

You might have spent hours combing through your tax deductions this year, only to realize you just missed the cutoff for itemizing.


We can’t help you get back that time, but we can help you make smarter tax decisions by understanding your donation habits. With a Donor Advised Fund, you can “front load” your charitable contributions one year, allowing you to write of a larger portion of your income, and then spend down that contribution over many years.

To make this happen, you have to consider your taxable income, your current itemizing, your income bracket, and — of course- your financial plan.

First, let’s explain the concept of taxable income:

Income taxes are payments paid to the government based on a percent of taxable income. You calculate your taxable income by taking all the income you make — either through your day job or your investments — and subtracting out what’s deductible, or not taxable.

{Taxable Income = Income — Nontaxable Income}

The higher your taxableincome, the more taxes you pay. Put another way, the higheryour non-taxable income, the less taxes you pay.

There are lots of examples of non-taxable income, a key one being income you donated to nonprofits. (Note: We’re using nontaxable income to refer to adjustments, deductions and exemptions. For a more complete breakdown check out this Motley Fool Article)

Now, let’s talk about itemizing:


The default option when you do your taxes is “non-itemizing” and taking the standard deduction. That basically means, the government assumes that if you’re single, $12,000 of your income is deductible (non-taxable), and if you’re filing married jointly, about $24,000 of your income is deductible (nontaxable).

But, for some people, that ballpark is too low. That’s when you might decide to itemize — that is, show the IRS an itemized list of all the tax-exempt transactions you’ve made that year.

Itemizing is often seen as advantageous, because you can lower your taxable income even more than the standard amount — pending that you prove you’ve made outsized contributions.

Prior to 2019, the “standard amount” was about half the current rate, $6,350. That means you’ll have to give more this year and in coming years to exceed the standard deduction amount that you did in the past.

How does this affect my giving strategy?

For some donors, a method called “bunching” allows them to plan their giving and their tax strategy simultaneously. If you’re coming into a year where you know you may be close to or exceeding the standard deduction, you can use a Donor Advised Fund to front-load your charitable deduction one year, and then over time, spend that money down.

For example, rather than giving $3,000 each year for three years, you can put $9,000 into a Donor Advised Fund, and write-off that $9,000 this year. Over the next three years (or any time period, really) you can give that money away to charities, spending down the amount as if it were a debit card or a gift card. Since you already received the write-off when you put money into the Donor Advised Fund, you don’t report any charitable deductions in the years to come. Those two years, you instead take the standard deduction amount.

In this way, you’ve front-loaded your donations to achieve the minimum one year, without decreasing your philanthropic commitment.

Of course, this strategy requires more upfront planning to figure out the best deal (much like your credit card point game plan) and an understanding of how much you’d like to budget each year for philanthropy. If you’re interested in putting a bunching strategy in action, check out our blog on developing a charity budget or sign up to join the waiting list to use our Donor Advised Fund product and we’ll add you to our community.