Gift Bunching: How To Maximize Your Charitable Impact

Many of you give generously to causes you care deeply about, including charities, churches, and other non-profit organizations. Beyond the positive impact of these donations, there are potential income tax benefits for donors. Gift bunching is one strategy you can use to optimize charitable contributions while maximizing tax savings. 

What is Gift Bunching? 

The concept of gift bunching is simple: instead of spreading your donations evenly across several years, you concentrate them into a single tax year. Why does this matter? Before 2018 standard deduction amounts were much lower than they are today. It was easier for tax filers to itemize tax deductions — such as charitable gifts, mortgage interest, and state and local taxes — to surpass the standard deduction amount, resulting in lower federal taxes.  

When the Tax Cuts and Jobs Act (TCJA) was passed in 2018, the standard deduction amount was almost doubled. The percentage of tax filers who itemized deductions dropped from roughly 30% to around 10%. By bundling your charitable contributions into a single tax year, you can itemize your deductions more effectively and exceed the standard deduction threshold. 

Here’s how it works. Let’s say you donate $15,000 annually over three years to a charitable cause. Instead of donating $15,000 each year (and taking the standard deduction), you contribute $45,000 in a single year. By bunching your donation and itemizing your deduction, you can save more money on your overall taxes. Below is a table that shows the tax advantages of using gift bunching. For tax year 2023, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. 

You may notice that the charities of your choice won’t receive any donations in the ‘off’ years of this strategy, but this can be easily solved by setting up a donor advised fund. While contributions would be made to this account in the ‘bunch’ year, funds do not need to be distributed to charities in the same year. Instead, distributions can be made on an annual basis, or however often you direct. 

If you would like to learn more about gift bunching or are interested in setting up a donor advised fund, please reach out to your DCM advisor. They can help you determine if these are the appropriate strategies for you.