Please help me validate my DAF calculation for 2023

[itsjustme]

Our tax situation is pretty simple... MFJ with single W-2 income in the 24% tax bracket with nothing else special about our tax situation (no businesses, etc).  Our charitable giving is around $14k cash per year plus around $3k in donated goods which means our itemized deductions fall below the standard deduction.  Therefore, opening a DAF in 2021 enabled us to deduct three year's worth of charitable giving for that year (2021's cash donations, plus pre-funded 2022 and 2023 in the DAF).  I funded the DAF with appreciated VTSAX shares from our taxable brokerage, which also enabled me to avoid paying capital gains tax on those shares.  By my estimation (can't remember exactly what the math worked out to be back then), my ~$40k total charitable giving in 2021 saved me somewhere around $5k in taxes (combined income and capital gains tax savings).

I need to decide whether to do this again but since all giving in 2023 was through the DAF I will only get a benefit from future years' donations.  Is my math below correct?  

• 2-year's worth of donations into DAF in 2023 - $28k (two year's worth of donations) + $3k (donated goods value in 2023) = $31k total - $27,700 standard deduction = $3,300 delta * 15% (approximate effective tax rate) = $495 in income tax savings
• 3-year's worth of donations into DAF in 2023 - $42k (three year's worth of donations) + $3k (donated goods value in 2023) = $45k total - $27,700 standard deduction = $14,300 delta * 15% (approximate effective tax rate) = $2,145 in tax savings

I don't have a ton of capital gains to offer for this transaction so I might only gain another ~$300 or so in tax savings from that.   
If my math is correct, I basically need to decide whether I want to pre-fund three year's worth of donations (2024-2026) to make this "worth" it.  

Does anyone have any advice on how you manage your DAF contributions?  How many years' worth of donations is too much?  What's the minimum that makes it "worth" it for you?  Other advice or considerations?

Thanks!

[brawlrats]

Do you have any other deductions...mortgage interest, state/local/property taxes, etc.?

Those will eat away at the different between the $27K and the $14K and increase the benefit of your DAF contributions.

Personally, I typically donate two years contributions in one year, then take the SD in between. Three years would probably make more sense but I prefer the flexibility of two years. Plus, I am at the point in my career that my income might be rising significantly in the coming years, so two years allows me to manage that a little better.

[rkhusky]

You don’t have other deductions like property tax, mortgage interest, state income tax, sales tax?

[itsjustme]

Yes, good point, I would hit the $10k limit on SALT taxes ($9,500 in property taxes pretty much does it). That would add another $1,500 to the tax savings, thanks for the reminder!

[IowaFarmBoy]

If you are in the 24% tax bracket, wouldn't most of the additional deduction be offsetting income with a marginal tax rate of 24 or 22%?

[jebmke]

If you are in the 24% tax bracket, wouldn't most of the additional deduction be offsetting income with a marginal tax rate of 24 and/or 22%?

Like a lot of thing tax, it depends. I'm in the 24% bracket but my marginal rate as I push taxable down is 27% -- not even a bracket.

[itsjustme]

If you are in the 24% tax bracket, wouldn't most of the additional deduction be offsetting income with a marginal tax rate of 24 and/or 22%?

My assumption was that your net savings rate would equal whatever your effective tax rate is. My effective tax rate should end up somewhere around 15% after I bring my AGI down from the itemized deductions. If so, then you would use the effective rate to calculate savings since that's what you ended up paying, right? That's a genuine question, I'm not confident that's how it would work. I guess I would need to add in state tax savings too, so another 4.95% for IL, brining the total effective savings to around 20%.

[IowaFarmBoy]

If you are in the 24% tax bracket, wouldn't most of the additional deduction be offsetting income with a marginal tax rate of 24 and/or 22%?

My assumption was that your net savings rate would equal whatever your effective tax rate is. My effective tax rate should end up somewhere around 15% after I bring my AGI down from the itemized deductions. If so, then you would use the effective rate to calculate savings since that's what you ended up paying, right? That's a genuine question, I'm not confident that's how it would work. I guess I would need to add in state tax savings too, so another 4.95% for IL, brining the total effective savings to around 20%.

I think you would want to use the marginal rate. You are reducing income in your highest bracket. As jebmke pointed out, tax calculations can vary based on individual situation. You may want to run this through a tax calculator and confirm your situation.

I'm also in Illinois and we can't itemize deductions on our state returns so unfortunately no additional savings there.

ETA: If you are donating appreciated securities to your DAF, this could help you in Illinois since I don't think they are counted as income here.