Using Charitable Bunching to Make the Most of Your Deductions

Authored by: Chris Vidler, CFP®, CIMA®

For many individuals and families, charitable giving is about more than tax savings. It is a way to support meaningful causes, create a lasting impact, and express personal values. Thoughtful planning can help ensure those gifts are made as efficiently as possible.

Recent tax law changes have made it harder for some taxpayers to benefit from annual charitable contributions alone. As a result, some donors may benefit from concentrating multiple years of charitable contributions into a single tax year, a strategy commonly known as charitable bunching.

When coordinated effectively, charitable bunching can help donors maximize itemized deductions while maintaining their long-term charitable goals. Donor-advised funds can add flexibility by separating the timing of the tax deduction from the timing of charitable distributions.

Why Timing Matters for Charitable Giving

Many taxpayers make charitable contributions consistently each year, often supporting the same organizations with annual gifts. While this approach aligns well with long-term philanthropic goals, it may not always produce the most effective tax outcome.

Under current tax rules, itemized charitable deductions are generally subject to a threshold tied to adjusted gross income (AGI). As a result, smaller annual donations may generate less tax benefit than they have in the past, particularly for households whose total itemized deductions are close to the standard deduction or who make charitable gifts that fall below the AGI-based threshold.

Historically, charitable deductions were not subject to this type of AGI-based floor. While taxpayers still must meet the requirements for itemizing deductions, the introduction of the 0.5% AGI threshold created an additional hurdle that may reduce the tax benefit of smaller annual charitable gifts. This change has made charitable planning and gift timing more important considerations for many donors.

Consider an individual with an AGI of $400,000 who typically contributes $5,000 to charity each year. Under the current rules, only charitable contributions above 0.5% of AGI would potentially qualify as an itemized deduction. In this example, the first $2,000 of annual giving would not generate a charitable deduction, leaving only the remaining amount eligible for consideration as an itemized deduction.

For some donors, this creates an opportunity to rethink the timing of their gifts rather than the amount they intend to give. Instead of making the same annual contribution every year, donors may choose to consolidate several years of planned donations into one tax year. This strategy, commonly referred to as charitable bunching, can help donors exceed applicable deduction thresholds and potentially realize a larger cumulative deduction while continuing to support the causes they care about over time.

Importantly, charitable bunching does not require a donor to become more charitable. It is a coordination strategy that aligns the timing of gifts with the tax rules that govern charitable deductions.

What Is Charitable Bunching?

Charitable bunching is a strategy that involves combining several years' worth of planned charitable donations into a single tax year rather than spreading those gifts evenly over time. The goal is not necessarily to increase overall charitable giving, but rather to improve the tax efficiency of gifts that were already intended.

For example, imagine a family that typically contributes $10,000 to charity each year. Rather than donating $10,000 annually over the next five years, they could contribute $50,000 in a single year. By concentrating those gifts into one tax year, they may be better positioned to exceed applicable deduction thresholds and generate a larger itemized deduction than they would have received through a series of smaller annual gifts. In subsequent years, they may choose to take the standard deduction while continuing to support their favorite charities through prior planning.

The potential benefits of bunching can become even more pronounced during years when income is unusually high. Events such as the sale of a business, the exercise of stock options, receipt of a large bonus, or significant capital gains can create opportunities to pair a larger charitable contribution with a year in which a deduction may be particularly valuable.

Importantly, charitable bunching is not an all-or-nothing strategy. Some donors choose to bunch gifts every two or three years, while others may consolidate five or more years of planned giving. The appropriate approach depends on factors such as charitable goals, income levels, taxable events, and overall financial planning objectives.

A donor-advised fund can help address this concern by allowing donors to receive the potential tax benefit of a larger contribution today while distributing funds to charitable organizations over time.

How a Donor-Advised Fund Can Simplify Charitable Bunching

For many donors, a donor-advised fund (DAF) can help charitable bunching work smoothly.

A donor-advised fund is a charitable giving account that allows individuals and families to make an irrevocable charitable contribution, receive a potential tax deduction in the year of the contribution, and recommend grants to qualified charities over time. Unlike a direct contribution to a charity, a DAF separates the timing of the tax deduction from the timing of charitable distributions.

Related Reading: Understanding Donor-Advised Funds: A Flexible Approach to Charitable Giving

This flexibility makes donor-advised funds a natural complement to a charitable bunching strategy.

Returning to our earlier example, suppose a family typically gives $10,000 annually to charity. Rather than donating directly to charities each year, they may choose to contribute $50,000 to a donor-advised fund in a single tax year. By doing so, they may be able to maximize the tax benefit associated with that larger contribution while still recommending annual grants of $10,000 to their favorite organizations over the next five years. The charities continue receiving consistent support, while the donor gains greater control over the timing of the deduction.

In addition to providing grant-making flexibility, donor-advised funds can offer several other advantages:

• Simplified recordkeeping through a single charitable giving account.
• The ability to support multiple charities from one centralized source.
• The opportunity to contribute appreciated securities rather than cash.
• Potential tax-free growth of assets while they remain in the fund awaiting future grants.

For donors already committed to charitable giving, a donor-advised fund can coordinate philanthropy, tax planning, and grant-making flexibility in one place.

Why Appreciated Securities Can Make Charitable Bunching Even More Effective

While many donors think of charitable giving in terms of cash contributions, some of the most impactful charitable planning opportunities can arise from donating appreciated investments instead.

For investors who hold individual stocks, mutual funds, ETFs, or other securities that have significantly increased in value over time, gifting appreciated assets may provide benefits beyond those available through a cash donation. When donated directly to a qualified charity or donor-advised fund, appreciated securities can often be transferred without first being sold, allowing the embedded capital gain to potentially go unrealized by the donor. At the same time, the donor may be eligible for a charitable deduction based on the fair market value of the securities, subject to applicable tax rules and limitations.

This approach can be particularly compelling when combined with a charitable bunching strategy.

Putting the Strategy Together

Consider an investor who plans to make charitable gifts over the coming several years and also owns a concentrated stock position that has appreciated substantially. Rather than donating cash annually, they might choose to contribute a larger amount of appreciated securities during a single tax year as part of a charitable bunching strategy.

In doing so, they may be able to:

• Concentrate multiple years of charitable gifts into one tax year.
• Potentially maximize the value of available charitable deductions.
• Reduce exposure to a concentrated investment position.
• Potentially avoid realizing capital gains taxes that may have resulted from selling the securities first.
• Continue supporting charitable organizations over time through a coordinated giving plan.

As with any planning strategy, the appropriateness of gifting appreciated securities depends on an individual's broader financial picture, charitable goals, and tax situation. However, for donors who already intend to support charitable organizations, donating appreciated investments may offer a more efficient way to meet charitable objectives than writing a check.

When Charitable Bunching May Make Sense

Like many planning strategies, charitable bunching is not a one-size-fits-all solution. However, it can be particularly effective for individuals and families who are already committed to regular charitable giving and are looking for ways to make those gifts more tax efficient.

You Consistently Support Charitable Causes

Charitable bunching works best for donors who have an established pattern of giving. If charitable contributions are already part of your annual financial plan, bunching may allow you to accomplish the same philanthropic goals while potentially increasing the tax benefit associated with those gifts.

Your Income Varies from Year to Year

Some years naturally create more planning opportunities than others. Business owners, executives, and professionals may experience periods of elevated income due to bonuses, equity compensation, business income, or other one-time events. Making a larger charitable contribution during a higher-income year may help offset a portion of that income while supporting causes that are important to you.

You're Experiencing a Major Liquidity Event

The sale of a business, a significant real estate transaction, the exercise of stock options, or large capital gains from an investment portfolio can all create unusually taxable years. In these situations, charitable bunching may become a valuable component of a broader tax planning strategy.

Your Itemized Deductions Are Close to the Standard Deduction

For some households, annual charitable contributions may not be large enough on their own to produce a meaningful itemized deduction. By combining multiple years of planned giving into one tax year, donors may be more likely to maximize the benefit of itemizing deductions in that year while potentially utilizing the standard deduction in future years.

You Want Greater Flexibility Around Your Giving Strategy

Charitable bunching can also create opportunities to be more intentional about when and how gifts are made. Rather than viewing charitable donations as a year-end exercise, donors can align giving decisions with broader financial planning objectives, taxable events, and long-term philanthropic goals.

A Planning Opportunity, Not a Requirement

Ultimately, charitable bunching is worth evaluating for donors with regular giving patterns, variable income, or upcoming taxable events.

Aligning Your Charitable Goals With Your Financial Plan

The most effective charitable giving strategies are those that support both the causes you care about and your broader financial objectives. While tax considerations should rarely be the sole motivation for charitable giving, they can play an important role in determining how and when gifts are made.

For many donors, charitable bunching offers a simple but powerful way to increase the efficiency of planned giving without changing their overall philanthropic goals. When combined with tools such as donor-advised funds and appreciated securities, the strategy can create opportunities to maximize charitable impact while navigating an increasingly complex tax landscape.

Because income levels, charitable intentions, investment holdings, and tax circumstances vary, charitable giving decisions are often most effective when coordinated as part of a comprehensive financial plan.

Ready to Explore Your Charitable Giving Options?

If you're interested in learning how charitable bunching, donor-advised funds, or gifting appreciated securities may fit within your overall wealth management strategy, contact the team at Concentric Wealth Partners.

Contact Concentric Wealth Partners:

https://www.concentricwealthpartners.com/contact-us

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Chris Vidler and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Concentric Wealth Partners does not provide tax or legal advice. Clients should consult with their tax and legal professionals before implementing any charitable giving strategy.