What is Donation Bunching?
Donation bunching is a tax strategy that consolidates your donations for two years into a single year to maximize your itemized deduction for the year you make your donations.
Donation bunching is a tax strategy that consolidates your donations for two years into a single year to maximize your itemized deduction for the year you make your donations. This strategy has become increasingly relevant since the Tax Cuts and Jobs Act of 2017 roughly doubled the standard deduction through 2025. This means that the standard deduction in 2023 is $13,850 for individuals and $27,700 for filing jointly. For most Americans, this high standard deduction means that itemization is not the best way to maximize their tax deductions. For some, it can be worthwhile to bunch their donations into a single year so they can receive a higher itemized deduction for that year and the standard deduction for the other year.
Donation Bunching Pros and Cons
Maximizing your tax deduction can increase your giving budget as more funds are available. This can be a great asset for individuals and families looking to maximize their giving! However, donation bunching also requires some planning and execution beyond your standard giving best practices. Donation bunching can also distract from the real goal: supporting charitable organizations. Keep your giving goals front and center throughout the process to ensure that you stay on the right track.
Steps for Donation Bunching
1. Determine if donation bunching is right for you.
- Will donation bunching even work? If bunching your donations doesn’t put you well over the itemization threshold, this practice is not worthwhile. Similarly, this practice is irrelevant if you exceed the itemization limit without your charitable contributions. If you are unsure if donation bunching will work for you, use Form 1040 to estimate your itemization with and without bunching. Remember that if you are utilizing this strategy, review your total tax burden for the following year, which may change depending on your life situation.
- Are you ready to commit to donation bunching? Donation bunching is a multi-year strategy that requires some effort and dedication. If you are dealing with significant financial uncertainty or other factors that may prevent you from achieving the necessary followthrough, this practice is probably not for you. If you are worried that donation bunching will interfere with your efforts to support the charitable causes you care about, think carefully about how you will avoid (or be unable to avoid) that outcome before you commit.
2. Decide how you are going to shift your giving.
- Donation timing: If you usually give during the end-of-the-year giving season, this can be as easy as waiting a few weeks to donate in January instead of December, pushing your donation into the next tax year. The following giving season, you must give at your usual time in December. That year will be your itemization year.
- Consider a donor-advised fund (DAF): If you prefer to give throughout the year (as we recommend), you can use a DAF to shift your tax burden without interrupting the flow of your donations. Money going into a DAF is counted among your tax-deductible contributions even if the money has not been distributed to charitable organizations. You can add to your DAF at any time, including bunching your donations into a single tax year, and then distribute those funds per your giving plan to best serve organizations and meet your philanthropic goals. It is essential that the extra step of transferring money to a DAF does not interfere with the goal of getting money to nonprofits doing great work. Don’t let your funds sit unused once you have collected your tax deductions!
3. File your taxes.
- In an ‘off’ year: Filing your taxes will be straightforward as you take the standard deduction.
- In a ‘bunched’ year: Keep all your donation receipts and properly include them in your itemization. You will also need to carefully track other factors included in the itemized deduction. In these years, you may want to consider some level of paid support to ensure that you get the most out of your itemization, even if you usually do your taxes yourself.
Donation bunching may be a good way to maximize your giving budget, but only if you are willing to put in a bit of extra work. If you decide to commit to this strategy, make sure you follow through to see the benefits for yourself and through the work of the organizations you support.