Follow-up: was I too harsh on “charitable clumping?”

On Tuesday I wrote that so-called “charitably clumping” was a fairly transparent marketing campaign by the philanthropy and money management industries to generate more contributions and assets under management.

Commenters were not amused! After reading through the comments I’m happy to concede I overstated my case, while I think some readers might have passed over elements of my argument as well.

There’s no secret to timing charitable contributions

As long as charitable contributions have been eligible itemized deductions, it’s been possible to shift contributions forward or back in order to claim the maximum available tax benefit.

Someone making $10,000 in charitable contributions per year has always been able to wait until the end of the year to estimate whether the deduction would be more valuable if made in December or January. That allows the taxpayer to maximize the value of their deduction while, as commenter DaveS put it, “For the charities the contributions all come 11-13 months apart – not a big feast or famine rhythm at all.”

This has nothing to do with the Republican tax bill, except that the higher standard deduction gives taxpayers one more thing to keep in mind when deciding which tax year to make a contribution in.

If we’re going to call shifting a contribution a few days or weeks in one direction or another “charitable clumping,” then who could object to charitable clumping?

Proponents of charitable clumping make a much stronger claim

In the post I linked to in my original piece, and was attempting to be in dialogue with, Michael Kitces describes something completely different:

“The end result of this ‘charitable clumping’ strategy is that by doing 5 years’ worth of charitable contributions at once, the couple gets at least part of the value of the deduction for a charitable contribution, while also saving additional taxes by donating appreciated securities and “replacing” them (at a new, higher cost basis) with the money that would have been donated. Which means the net cash flows into the household and out to the charity are the same… but by engaging in the charitable clumping strategy, the couple obtains both a partial charitable deduction and avoids capital gains. (Or alternatively, the strategy could be executed by simply contributing cash to the donor-advised fund, which doesn’t produce any capital gains tax savings but still results in additional charitable deductions through clumping.)”

It’s this stronger claim that I was objecting to, for the three reasons I explained in my original post:

• non-profits perhaps should, but definitely don’t, treat a single large donation as the sum of multiple small donations spread out over many years;
• donor-advised funds promote charitable clumping in order to gather assets they can charge account maintenance fees on, reducing the total value of your contributions to the recipient;
• and charitable contributions are made periodically, instead of all at once, because of the individual taxpayer’s fluctuating economic circumstances, and contributions to donor-advised funds can’t be returned in cases of economic hardship.

None of these considerations matter if you’re talking about shifting a donation a few days or weeks forward or back. I was addressing my argument at Kitces’s “strong” form of charitable clumping, not the commonsense business of figuring out whether you should make a donation in December or January.

Conclusion

If you’re a wealthy, high-income person planning to give away a million spare dollars in the next 10 years, you should certainly feel free to assign the contributions to tax years in which you would otherwise pay the highest marginal tax rate on that income.

But if you’re an ordinary worker, you don’t need me to tell you that you probably shouldn’t be making your 2023 charitable contributions in 2018, no matter how sweet the tax benefits are, because 2023 is a long time from now.