Should I Be Bunching Charitable Donations?

Charitable giving is an important part of any well-rounded financial plan. Outside of the many personal benefits of philanthropy and the impact you can make on your community, strategic charitable giving can also lower your tax burden and be an important tool in your overall financial plan. 

Whether you’re interested in donating to existing Houston disaster relief programs or are wondering how to start a scholarship fund, you can make a difference in your area of choice while also taking advantage of a few financial incentives.

Bunching charitable donations is a common strategy for maximizing the income tax deductibility benefits of charitable giving, and is a simple way that you may be able to save today. The charitable giving professionals at Greater Houston Community Foundation are here to discuss the advantages of bunching donations, and how strategic philanthropy can be leveraged to help you and your community. 

Continue reading about bunching charitable donations, or reach out directly to Greater Houston Community Foundation to get started. 

Key Insights

• Charitable giving is not only personally fulfilling but also plays a significant role in financial planning, especially for high-net-worth individuals.
• Bunching donations involves consolidating multiple years’ worth of charitable contributions into one tax year to surpass the standard deduction threshold.
• Bunching provides tax benefits by pushing itemized deductions over the standard deduction, offers flexibility in how and when donations are made, and encourages regular giving, which can build a lasting legacy.
• Besides bunching, other tax-smart giving strategies include donating to donor advised funds, establishing private foundations, utilizing charitable trusts, and making qualified charitable distributions.
• Working with a trusted philanthropic partner like Greater Houston Community Foundation can help donors align their charitable strategies with their financial goals, and help them make informed decisions that benefit both themselves and the causes they support.

Table of Contents

• The benefits of charitable giving
• What is bunching charitable donations?
• Benefits of bunching
• Examples of bunching donations
• Charitable giving strategies
• Partnering for strategic philanthropy

Charitable giving and the financial benefits of donating to charity

Charitable giving is not just about donating to causes that you care most about — although the personal fulfillment and connections forged by giving have been found to correlate to longer life expectancy and other surprising benefits of philanthropy on your well-being. Giving is an essential part of financial, tax, and estate planning for many high-net-worth individuals. 

Incorporating charitable giving into comprehensive financial plans is complex, but at its core, charitable giving benefits financial plans because donations can be deducted from taxable income, reducing overall tax liability — especially for high-net-worth clients, or clients who donate substantial amounts. 

How to bunch itemized deductions

Bunching charitable donations, or lumping charitable contributions, is a tax strategy that consolidates multiple years’ worth of charitable contributions into a single tax year. The intention is to “bunch” your donations from multiple years into one year to maximize your itemized deductions, which could surpass the standard deduction threshold.

Once you’ve identified when bunching would be the most advantageous, you can itemize multiple years of deductions for one year and decide to take a standard deduction the following year. 

This approach has gained significant popularity since the Tax Cuts and Jobs Act (TCJA) passed in 2017. The TCJA almost doubled the standard deduction, which made it much less enticing for many taxpayers, whose yearly charitable donations don’t reach the standard limit, to itemize their deductions. 

Benefits of bunching charitable donations

Bunching your deductions can incentivize making regular contributions to the charities you support, which can reward you for making a significant impact in the communities that matter to you. A few benefits of bunching donations include:

1. Tax benefits. Bunching your deductions into one year can push your itemized deductions over the standard deduction threshold and allow you to claim a higher deduction, which in turn lowers your taxable income and overall tax burden.
2. Flexibility in giving. The power to bunch your deductions gives flexibility on when and how you give. You can continue to give on whatever schedule you prefer while reaping the tax benefits of those donations whenever you do decide to bunch them. 
3. Legacy building. Donation bunching encourages donors to make regular donations to the organizations they support. Regular donations mean a magnified impact and, in turn, a lasting legacy. 
4. Strategic financial planning. Employing charitable giving financial planning strategies like bunching encourages you to refine and strategize your overall financial plan. An outdated or comprehensive financial plan and giving strategy 

Bunching charitable donations examples

Here’s a scenario: imagine that you typically donate $8,000 dollars to your scholarship fund every year. If you only donate $8,000, your donation would not exceed the standard deduction limit, and therefore you wouldn’t receive any additional tax benefits for your charitable gift. 

But, if you decide to bunch your donations and give $16,000 every two years instead, that $16,000 would push you over the standard deduction threshold, and allow you to itemize a deduction for your gift. The standard deduction for 2024 is $14,600, so this example applies nicely. 

Essentially, if you consistently donate to charity, but do not always meet the threshold for the standard deduction, you can potentially meet that threshold by consolidating your donations into one single year. This would allow you to strategically support the causes that you care so much about.

Tax-smart charitable giving strategies

Bunching is just one of many strategies that donors can use to enjoy the benefits of maximizing their impact. Here are a few other strategies to consider:

1. Donor advised funds (DAFs). DAFs are great, simple giving vehicles that allow donors to make contributions to their favorite charities over time and receive immediate tax deductions. 
2. Private foundations. Establishing a private foundation can give donors maximum control over their charitable giving, and can also provide significant tax benefits. Private foundations, however, come with increased administrative responsibilities and are generally only necessitated by large and ongoing charitable giving. 
3. Charitable trusts. Charitable Remainder Trusts and Charitable Lead Trusts are estate planning and charitable giving tools that allow for and protect significant ongoing contributions.
4. Qualified Charitable Distributions (QCD). QCDs allow donors over 70 ½ years of age to make direct transfers from their retirement accounts to qualified charities of their choice. QCDs count toward Required Minimum Distributions, and are not included in overall taxable income. 

Before investing in any giving vehicle, it is essential that you find charities that align with your values and goals. You can start by deciding on your area of focus, researching the missions and programs of charities that seem interesting, and reviewing their financials for transparency — or you can reach out to a philanthropic partner like Greater Houston Community Foundation for help. The Foundation can help you identify and vet organizations that match your values and your philanthropic objectives.

How to maximize charitable donations: partnering for strategic philanthropy

Maximizing your impact and the benefits of your strategic philanthropy can be challenging, but working with a trusted partner in philanthropy can help. Bunching charitable donations is just one of many strategies that you and your professional advisors can employ in order to align your legacy with your financial goals. 

Greater Houston Community Foundation is here to listen and tailor solutions that meet the unique needs of professional advisors and their high-net-worth clients. Our team works closely with advisors to ensure that clients’ charitable giving strategies align with their financial goals and personal values. Whether you’re considering bunching donations, establishing a donor advised fund, or exploring other charitable giving options, we are here to support you in making informed decisions that benefit both you and the causes you care about. 

Consider Greater Houston Community Foundation the philanthropic extension of your efforts — a holistic approach to philanthropy. Call the Foundation today at 713-333-2210 or reach out directly to get started. 

More Helpful Articles by Greater Houston Community Foundation: 

• Philanthropy for High-Net-Worth Individuals and Families
• Mid-Year Strategies to Amplify Your Charitable Impact
• How to Give Back to Your Community
• What to Do with an Inheritance
• How to Start a Corporate Philanthropy Program

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