How bunching works — the core idea
Bunching means intentionally timing charitable contributions so you give multiple years’ worth of donations in a single tax year. When total itemized deductions (including mortgage interest, state and local taxes within limits, medical expenses where applicable, and charitable gifts) exceed the standard deduction, a taxpayer benefits by itemizing. When the standard deduction is higher, many donors fall short of itemizing each year — bunching creates years when itemizing becomes worthwhile.
In my practice as a CPA and CFP®, I frequently see middle-income households whose steady annual giving doesn’t exceed the standard deduction. By consolidating two or three years of giving into one year, they often trigger itemization for that year and save more in federal income tax over a multi‑year cycle.
Why bunching matters now
The 2017 Tax Cuts and Jobs Act substantially increased the standard deduction, and many taxpayers now find that itemizing every year is no longer beneficial (see IRS Publication 526 for the rules on charitable contributions). Bunching is a response to that environment: it preserves the donor’s overall giving level while capturing tax value in selected years.
Authoritative guidance: see IRS Publication 526, Charitable Contributions (IRS) for documentation and deduction rules, and the IRS charities pages for qualified organization requirements.
Typical bunching methods
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Donor‑Advised Funds (DAFs): You contribute cash or appreciated assets to a sponsoring public charity (the DAF) and receive an immediate tax deduction in the contribution year. Grants to charities may be made later on your schedule. For more on DAFs, see our guide on Donor-Advised Funds (DAFs).
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Direct large gifts: Make a larger single gift in the chosen year (e.g., pre‑fund three years of pledges) to public charities.
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Appreciated securities: Donating long‑term appreciated stock or mutual fund shares usually yields a deduction for fair market value and avoids capital gains tax, increasing the after‑tax value of your gift in a bunching year.
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Qualified Charitable Distributions (QCDs): For eligible IRA owners, QCDs let you transfer funds directly from an IRA to a charity. QCDs can satisfy required minimum distributions without increasing taxable income. See our Qualified Charitable Distribution (QCD) glossary entry for specifics.
Simple numerical example
Assume a household normally gives $8,000 a year. Their other itemized deductions are small and don’t push them past the standard deduction in a typical year. If they bunch three years of gifts into one year (donating $24,000 in year 1), they may exceed the standard deduction and itemize that year, then take the standard deduction in years 2 and 3. The net federal tax saved across the three years can exceed the tax outcome from steady annual giving.
This example ignores state tax interactions and AGI‑based deduction limits; run calculations with your tax pro before acting.
When to consider bunching
- You regularly give but almost always take the standard deduction.
- Your giving is predictable and you can afford larger donations in selected years.
- You expect taxable income to be higher in a future year (bunching into a year with higher income can reduce tax on that income if you itemize then).
- You want to accelerate charitable tax benefits while directing grants later (DAF use).
Choosing between DAFs, private foundations, and direct giving
- DAFs: Low administrative cost, immediate tax deduction, and flexibility to grant later. Good for donors who want professional handling and anonymity options.
- Private foundation: More control over grant-making and investments but higher cost, compliance burden, and public reporting obligations.
- Direct gifts: Simple and direct; ideal for donors who want immediate impact and know the recipient charity.
For new donors who want to implement bunching with minimal paperwork, a DAF is often the most practical vehicle — see our article How to set up a donor‑advised fund for steps and considerations.
Tax rules and limits to watch
- Qualified organizations: Only gifts to qualifying charities (generally 501(c)(3) public charities) are deductible. Keep receipts and verify eligibility with IRS resources.
- AGI limits: Deductions for charitable contributions are subject to percentage limits of your adjusted gross income (AGI) depending on the asset type and the recipient organization. Excess amounts may be carried forward for up to five years. These limits and their percentage thresholds can vary, so check current IRS guidance or consult a tax advisor.
- Documentation: For cash gifts, save bank records or written acknowledgements from the charity for any contribution of $250 or more. For non‑cash gifts, appraisals or Form 8283 may be required for larger donations.
- Interaction with other tax benefits: Bunching affects not only federal deductions but also state tax filings, AMT exposure, and future deductibility; modeling all effects is important.
Authoritative source: IRS Publication 526 and the IRS charities pages explain documentation, limits, and eligible organizations.
Practical implementation checklist
- Inventory usual giving: List charities and average annual amounts.
- Model scenarios: Compare steady annual giving vs. 2‑ or 3‑year bunching using your marginal tax rate and state tax considerations.
- Select a vehicle: Choose between direct gifts, a DAF, or other vehicles (private foundation if you need special control).
- Execute in the chosen tax year: Make gifts before year‑end and request acknowledgements showing dates and amounts.
- Keep records: Maintain copies of receipts, canceled checks, brokerage confirmations for donated securities, and any appraisal documents.
- Reassess annually: Tax law, income, and family goals change; revisit the plan with a tax professional each year.
Common mistakes and pitfalls
- Overlooking the 60% and other AGI limits: Donors sometimes assume all cash gifts are fully deductible in the year given; high‑value gifts can be subject to deduction ceilings.
- Poor documentation: Failing to secure written acknowledgements for gifts of $250+ or missing appraisal support for non‑cash gifts can jeopardize deductions if audited.
- Cash‑flow strain: Bunching requires larger immediate outlays. Ensure liquidity and emergency needs aren’t sacrificed.
- Assuming QCDs apply to everyone: QCDs have specific eligibility rules and reporting requirements; confirm with guidance (see our QCD entry).
Real‑world case studies
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Household A: Annual giving $5,000. After modeling, they contributed $15,000 to a DAF in year one, itemized that year, and took the standard deduction for the next two years. They also used the DAF to distribute grants over three years to their favorite local charities.
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Household B: Regularly gives appreciated stock. By transferring long‑term appreciated securities in a bunching year, they captured the fair‑market‑value deduction and avoided capital gains taxes — increasing the tax efficiency of their philanthropy.
These are illustrative; results depend on marginal tax rates, state rules, and individual circumstances.
Coordinating with retirement and estate plans
- QCDs: IRA owners should consider QCDs for required distribution years. QCDs can be a tax‑efficient way to support charity while reducing taxable income, but check current eligibility rules and limits on the IRS site.
- Estate planning: Bunching can be combined with estate planning strategies (bequests, charitable remainder trusts) to achieve long‑term philanthropic goals while realizing tax efficiencies.
Questions to bring to your tax advisor
- Will bunching increase or decrease my tax liability across a 2–5 year horizon when accounting for state taxes and credits?
- Is a DAF or private foundation better for my control, cost, and legacy goals?
- How will donations of appreciated securities affect my itemized deductions and capital gains exposure?
- What documentation will I need to substantiate the deduction in the event of an audit?
Resources and further reading
- IRS Publication 526, Charitable Contributions (see IRS.gov for the latest edition).
- IRS charities and nonprofits information pages (for verifying qualified organizations).
- FinHelp: Donor‑Advised Funds (DAFs) — https://finhelp.io/glossary/donor-advised-funds-dafs/
- FinHelp: Qualified Charitable Distribution (QCD) — https://finhelp.io/glossary/qualified-charitable-distribution-qcd/
- FinHelp: Charitable Contribution — https://finhelp.io/glossary/charitable-contribution/
Professional note and disclaimer
This article shares general information based on common practice and IRS guidance; it is not personalized tax advice. In my practice as a CPA/CFP®, I recommend running multi‑year tax projections before you implement bunching and coordinating with a tax professional or financial planner to confirm current IRS rules and any state tax nuances.
See IRS Publication 526 for details on documentation, AGI limits, and qualified organizations: https://www.irs.gov/pub/irs-pdf/p526.pdf
