Charitable Bunching

Charitable Bunching: Donating Every Other Year

The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction—to $14,600 for single filers and $29,200 for married filing jointly in 2024. The consequence that received less attention than the headline numbers: a large majority of taxpayers who had previously itemized deductions can no longer do so profitably. Their charitable donations, state taxes, and mortgage interest combined no longer exceed the standard deduction, which means they receive no additional tax benefit from giving to charity.

This is not necessarily the end of the story. It is the beginning of a strategy called charitable bunching that restores the itemization benefit for regular donors—by concentrating two or more years of planned giving into a single tax year, generating a single large itemized deduction that exceeds the standard deduction, and then claiming the standard deduction in the off year. Combined with a donor-advised fund, the strategy separates the tax event from the charitable grants themselves, preserving both the timing advantage and the flexibility of the underlying giving.

THE MATH OF BUNCHING

A married couple files jointly. They have the following annual itemized deduction components: - State and local taxes (capped at $10,000 under SALT limitation)

- Mortgage interest: $8,500

- Annual charitable giving: $6,000 - Total itemized: $24,500

The standard deduction for 2024 is $29,200. Their itemized deductions fall $4,700 short of the standard deduction. Every year, they take the standard deduction and receive no marginal tax benefit from the $6,000 in charitable giving. The charity receives the donation, but the couple's tax position is identical to if they had given nothing.

Now apply bunching: instead of giving $6,000 per year, they give $12,000 every other year—contributing two years' worth in a single calendar year.

Bunching year (even years): Itemized deductions = $10,000 (SALT) + $8,500 (mortgage) + $12,000 (charitable) = $30,500. This exceeds the $29,200 standard deduction by $1,300. Off year (odd years): Give $0. Itemized deductions = $10,000 + $8,500 = $18,500. Take the standard deduction of $29,200.

Without bunching: Both years use the standard deduction. Total two-year deduction = $29,200 x 2 = $58,400. With bunching: Bunching year uses itemized ($30,500). Off year uses standard ($29,200). Total two-year deduction = $59,700.

Additional deduction from bunching: $1,300 over two years. At a 22% marginal rate: $286 in additional tax savings over two years.

This example illustrates the approach but undersells the benefit for higher deduction situations. For a couple giving $15,000 per year with the same SALT and mortgage interest, bunching $30,000 in one year produces itemized deductions of $48,500—$19,300 above the standard deduction, generating $4,246 in additional tax savings over the two-year cycle at 22%.

For higher-income households with larger charitable intent, the benefit scales proportionally. A household giving $25,000 per year, bunching $50,000 every other year, with itemized components totaling $25,000 before charitable, generates $75,000 in deductions in the bunching year—$45,800 above standard—at 32%: $14,656 in additional tax savings over two years from bunching alone.

THE DONOR-ADVISED FUND: THE ENABLING TOOL

The operational problem with bunching without additional structure: your charitable recipients—churches, schools, food banks, environmental organizations—depend on regular, predictable contributions. Bunching means receiving nothing from you in odd years. Many donors are reluctant to disrupt their giving relationships this way.

A Donor-Advised Fund (DAF) solves this entirely. A DAF is a charitable account held at a sponsoring organization—Fidelity Charitable, Schwab Charitable, Vanguard Charitable, National Philanthropies Trust, and many community foundations all sponsor DAFs. You make an irrevocable contribution to the DAF and receive the charitable deduction in the year of the contribution. You can then grant money from the DAF to any IRS-approved charity at any time—immediately, next year, or over many years—on your own schedule.

The DAF separates the tax event (the contribution, in the bunching year) from the charitable grants (distributed on whatever schedule you prefer).

Execution:

Odd year: No contribution to the DAF. No charitable deduction. Take the standard deduction. Continue granting $6,000 from the DAF balance to your chosen charities on your normal schedule.

Even year: Contribute $12,000 to the DAF. Itemize, capturing the deduction. Continue granting $6,000 from the DAF. The $12,000 contribution replenishes the grants you'll make in both the current year and the next.

Your charities receive consistent annual grants. You receive the tax deduction only in the bunching year. Both objectives are achieved simultaneously.

APPRECIATED SECURITIES: MAGNIFYING THE BENEFIT

The DAF bunching strategy becomes significantly more powerful when you contribute appreciated securities—stocks, ETFs, or mutual funds held in a taxable brokerage account with unrealized long-term capital gains—rather than cash.

When you contribute appreciated securities to a DAF:

- You receive a charitable deduction equal to the full fair market value of the securities on the date of contribution

- You pay no capital gains tax on the appreciation

- The DAF sells the securities and grants the proceeds to charities

By donating appreciated shares rather than cash, you effectively donate what would have been taxed capital gains. The combined benefit—charitable deduction plus avoided capital gains—is substantially larger than a cash donation of the same amount.

Example: You own $12,000 in a stock fund with an original cost basis of $4,000. Unrealized gain: $8,000. If you sold and donated cash:

- Capital gains tax at 15%: $1,200 owed

- Net donation: $10,800 (after tax) - Charitable deduction: $10,800

If you donate the shares directly to the DAF:

- No capital gains tax: $0

- Deduction: $12,000 (full fair market value) - Net tax saving vs. cash approach: $1,200 avoided capital gains + additional deduction on $1,200 difference

The IRS allows a charitable deduction for the full fair market value of appreciated long-term securities donated to a public charity or DAF, with no recognition of the gain. This is among the most tax-efficient charitable giving mechanisms available.

THREE-YEAR AND MULTI-YEAR BUNCHING

The logic extends beyond two-year cycles. For donors with substantial charitable intent and higher incomes, bunching three years of contributions—or even more—into a single year can create itemized deductions large enough to substantially exceed the standard deduction, generating proportionally larger tax savings.

The DAF's flexibility supports any bunching interval—you could contribute once every three, four, or five years, funding the DAF to cover that period's charitable grants, while itemizing only in the contribution year. The key is aligning the contribution size with both your charitable intentions and the deduction calculation that maximizes the arbitrage over the standard deduction.

The key is aligning the contribution size with both your charitable intentions and the deduction calculation that maximizes the arbitrage over the standard deduction.

QUALIFIED CHARITABLE DISTRIBUTIONS: THE AGE 70½ ALTERNATIVE

For taxpayers aged 70½ or older with traditional IRA balances, there is a related and in some ways superior strategy: the Qualified Charitable Distribution (QCD).

A QCD allows an IRA owner to direct up to $105,000 per year (2024, indexed for inflation) from their traditional IRA directly to a qualifying charity. The distribution is excluded from gross income entirely—it doesn't show up as income, and therefore doesn't affect AGI for purposes of Medicare IRMAA surcharges, Social Security taxation thresholds, or other income-based calculations.

For older donors who take the standard deduction (which includes an additional $1,550 per person over 65 in 2024), the QCD provides a tax benefit that bunching via DAF cannot: the charitable transfer reduces taxable income at the source, before it becomes income at all. A $10,000 QCD from a traditional IRA effectively provides the tax benefit of a deduction even for those who never itemize.

The QCD can also satisfy Required Minimum Distributions—up to the RMD amount can be directed to charity, reducing or eliminating the taxable RMD that would otherwise be forced into income.

Bunching with a DAF and the QCD are not competing strategies—they are tools for different tax situations. Pre-retirement donors benefit from bunching and DAF contributions. Post-70½ donors with traditional IRA balances may find the QCD more tax-efficient for at least a portion of their giving.

The principle underlying all of these strategies is the same: the tax deduction for charitable giving has different value depending on how and when it's claimed. Structuring the claiming to maximize that value—rather than accepting the default of annual small donations that never exceed the standard deduction—is how salaried employees with charitable intent turn giving into both a personal and financial statement.