A charitable bunching strategy should be considered by individuals who are charitable and want to lower the amount they owe in taxes. A charitable bunching strategy is when you double the charitable gifts in year one and then make no contributions in year two.
How Charitable Bunching Works
When preparing your tax return, you will either claim the standard deduction ($25,900 for MFJ) or your itemized deductions (only if it exceeds the standard deduction). Bunching the gifts allows the taxpayers to maximize their deductions over the two tax years by taking the itemized deductions in one year and the standard deduction in the next.
One concern you may have is that you don’t want to double up on gifting to a charity in one year and then give nothing the next year. A donor-advised fund exists for that reason and lets donors make the charitable contribution, receive the immediate tax deduction and then grant the money to the charity over time.
The below example shows how the charitable bunching strategy works.
If a married couple uses the standard deduction, and they usually give $15,000 to charity every year while their other deductions (mortgage interest, medical deductions, state and local taxes) are typically $10,000 per year, they could be missing out on the tax benefit. By accelerating next year’s gift into one year and then taking the standard deduction in the next year, they would receive $14,100 more in deductions as opposed to not bunching.
By planning your giving, you can give to causes you care about in the most tax-efficient way.