Bunching Charitable Giving with a Donor-Advised Fund

The 2017 Tax Cuts and Jobs Act doubled the standard deduction, and the One Big Beautiful Bill Act made that doubling permanent. For 2026 the standard deduction is $32,200 for married couples filing jointly. The result: about 90% of American households now claim the standard deduction and get no federal benefit from charitable giving. "Bunching" with a donor-advised fund is the workaround.

The arithmetic of the problem

A married-filing-jointly couple gives $15,000 a year to charity. Their other itemized deductions (state and local tax capped at $40,000 under OBBBA, mortgage interest, etc.) add another $20,000. Itemized total: $35,000. They itemize and deduct the full $35,000, a $2,800 advantage over the $32,200 standard deduction. The charitable giving produced $2,800 × marginal rate of value.

If the same couple gave nothing, they would still get the $32,200 standard deduction. The marginal value of the $15,000 of giving is only $2,800 of deduction, about $670 of tax savings at the 24% bracket. The other $12,200 of giving was, from a tax standpoint, free.

The bunching solution

Instead of giving $15,000 per year, give $45,000 every third year and nothing in the off years. The mechanism is the donor-advised fund (DAF), a §170(b)(1)(A)(vi) public charity that accepts a deductible contribution today and lets you "advise" grants out to your operating charities over future years.

• Year 1: contribute $45,000 to the DAF. Itemized deductions: $45,000 + $20,000 SALT/mortgage = $65,000. Itemize. The DAF holds the cash.
• Years 2 and 3: contribute nothing new to the DAF. Take the $32,200 standard deduction. Grant $15,000/year from the DAF to your operating charities.

The operating charities receive the same $15,000 a year. The donor's three-year deduction total rises from $35,000 × 3 = $105,000 to $65,000 + $32,200 + $32,200 = $129,400, a $24,400 boost, or roughly $5,900 in federal tax over the cycle at the 24% bracket.

Donating appreciated stock instead of cash

The bunching benefit compounds when the contribution is appreciated long-term stock. Under IRC §170(e)(1), a contribution of long-term-held publicly traded stock is deductible at fair market value with no recognition of the embedded gain. A $45,000 contribution of stock purchased for $10,000 yields a $45,000 deduction and avoids $35,000 of capital gain that would otherwise be realized on sale, a 23.8% federal saving on top of the deduction itself.

What the DAF cannot do

• Pay for personal pledges or benefits. DAF grants cannot satisfy a legally binding pledge (the donor would be receiving a quid pro quo benefit), cannot pay tuition or membership dues with substantive benefits, and cannot fund tickets to charity galas with any goods-and-services component.
• Grant to non-public charities. DAFs can grant to §501(c)(3) public charities. Grants to private foundations and to international charities (without an intermediary) are restricted.
• Be reversed. The contribution to the DAF is irrevocable: even if you change your mind, the cash legally belongs to the sponsoring charity.

Common mistakes

• Bunching cash when stock is available. Contributing cash and selling appreciated stock separately wastes the §170(e)(1) benefit. Always check the brokerage account first.
• Triggering AGI limits. Cash gifts to public charities are deductible up to 60% of AGI; stock gifts up to 30%. Very large bunches in a single year can hit the cap; excess carries forward five years but the time value is real.
• Confusing a DAF with a private foundation. A DAF has lower fees, lower administrative cost, no 5% minimum distribution requirement, and higher AGI limits. For most donors a DAF is the better tool.
• Forgetting QCDs once age 70½. A QCD from an IRA achieves AGI reduction the bunching strategy cannot. The two tools serve different donor profiles; over age 70½, the QCD usually wins.

Sources

• Internal Revenue Code §170, charitable contributions (Cornell LII): law.cornell.edu/uscode/text/26/170
• Internal Revenue Code §170(e)(1), appreciated property contributions: law.cornell.edu/uscode/text/26/170
• IRS Publication 526, Charitable Contributions: irs.gov/forms-pubs/about-publication-526
• IRS Notice 2017-73, donor-advised fund operational rules: irs.gov/pub/irs-drop/n-17-73.pdf
• One Big Beautiful Bill Act, Pub. L. 119-21 (permanent standard deduction levels): congress.gov/bill/119th-congress/house-bill/1

RetirementCheck101's tax-savings projection respects whether you itemize. Explore the free educational tool to see if bunching beats your current giving cadence.