Why donors consider bunching charitable gifts

Tax reform in recent years dramatically increased the standard deduction for U.S. taxpayers. While that simplified filing for many households, it also reduced the number of people who itemize deductions and therefore diminished the immediate tax benefit of charitable giving. A family donating $10,000 in cash every year may find that, after the $10,000 state and local tax deduction cap and their mortgage interest, they still fall short of the $29,200 standard deduction for married couples filing jointly in 2024. The gift is generous, but it yields no incremental deduction. Bunching is a strategy that addresses this gap by accelerating several years of gifts into a single tax year, often via a donor-advised fund (DAF). The donor itemizes during the high-giving year, capturing a large deduction, and then relies on the DAF to distribute grants to charities over the following years while taking the standard deduction again. This calculator quantifies the potential tax savings from that approach and shows how investment growth within the DAF can stretch the impact of the original contribution.

Bunching is not just for wealthy philanthropists. Middle-income families supporting a handful of nonprofits can benefit, particularly when mortgage interest or property taxes already bring them close to the standard deduction threshold. By using a DAF, donors avoid overwhelming their favorite organizations with a lumpy influx of funds and retain flexibility to adjust grants over time. The account operates like a charitable investment wallet: donors receive an immediate deduction when they contribute, but they can recommend grants at their own pace. Understanding the precise tax trade-offs helps donors decide whether the additional paperwork and the DAF provider’s fees are worthwhile. The calculator responds to that need by modeling both the cash flow and the deduction profile for steady versus bunched giving.

The mechanics of the model

The inputs capture the key drivers of the decision. Filing status determines the standard deduction: for 2024 filings it is $14,600 for single taxpayers, $21,900 for heads of household, and $29,200 for married couples filing jointly. The calculator caps state and local tax (SALT) deductions at $10,000 per year, reflecting current law. Mortgage interest (or other itemizable deductions such as medical expenses beyond thresholds) stacks on top. Charitable giving is either spread evenly every year (steady strategy) or bundled into a single donor-advised fund contribution that covers several years of grants (bunching strategy). The marginal tax rate you input captures the deduction’s value; if you expect to be in a 24 percent bracket, each additional dollar of deduction reduces federal tax by 24 cents. Finally, the DAF growth rate estimates how the account might appreciate while waiting to distribute grants, acknowledging that most sponsors allow portfolios of mutual funds or exchange-traded funds.

When you submit the form, the script constructs a multi-year projection equal to the bunching interval you specify. It calculates annual deductions under two scenarios. In the steady plan, each year features identical SALT, mortgage interest, and charitable contributions. The tax software logic is straightforward: if the sum of itemizable expenses exceeds the standard deduction, the taxpayer itemizes; otherwise they claim the standard amount. The tool treats the incremental tax benefit of itemizing as the excess of itemizable deductions over the standard deduction multiplied by the marginal rate. Anything below that threshold produces zero incremental benefit because the taxpayer would have taken the standard deduction anyway.

Math behind the donor-advised fund cycle

The donor-advised fund scenario is more nuanced. In year one, the donor contributes the entire multi-year giving target to the DAF—for example, three years’ worth of gifts if the interval is three. The calculator adds that lump sum to the capped SALT deduction and mortgage interest to determine itemizable expenses. Because the charitable deduction is large, the total usually exceeds the standard deduction, leading to itemization and a significant tax benefit. In subsequent years, the donor refrains from new charitable contributions, instead recommending grants from the DAF equal to the original annual giving amount. With only SALT and mortgage interest available, the taxpayer typically falls back to the standard deduction. The effective annual tax benefit across the cycle is therefore the year-one boost spread over the interval. Mathematically, the first-year deduction is:

$D=S_{\mathrm{cap}}+M+G\times T$, where $S_{\mathrm{cap}}$ is the $10,000 SALT cap (or the actual SALT paid if lower), $M$ is mortgage interest, $G$ is the annual charitable target, and $T$ is the bunching interval. The tax savings realized in that year equals $max(D-\mathrm{Std},0)\times r$, where $\mathrm{Std}$ is the standard deduction and $r$ is the marginal tax rate expressed as a decimal. In later years, the calculator compares $S_{\mathrm{cap}}+M$ against the standard deduction to determine whether itemization still makes sense.

Beyond the tax computation, the script tracks the donor-advised fund balance. It assumes the donor contributes at the beginning of the first year, the account earns the specified growth rate each year, and then the donor recommends grants equal to the original annual giving target. Investment gains compound until disbursements occur. If the growth rate is positive, the DAF may end the cycle with more money than needed for the scheduled grants, leaving a cushion for additional gifts or a reduced lump-sum contribution next time. The table and CSV export report the starting and ending balances each year so you can plan future grantmaking.

Worked example: a couple supporting multiple nonprofits

Consider a married couple who plans to donate $10,000 annually across several charities. They pay $12,000 in state and local taxes, but the SALT deduction is capped at $10,000. Their mortgage interest totals $8,000 per year. With the $29,200 standard deduction for joint filers, they currently take the standard deduction because their itemizable expenses—$10,000 SALT plus $8,000 interest plus $10,000 charitable gifts—sum to $28,000, which is below the threshold. If they are in the 24 percent marginal tax bracket, the steady strategy yields zero incremental federal tax savings; they are generous but receive no extra deduction.

Now suppose they open a donor-advised fund and elect a two-year bunching cycle. In year one they contribute $20,000 to the DAF, still intending to grant $10,000 to charities each year. The calculator shows that itemizable deductions in that year become $10,000 (capped SALT) + $8,000 (interest) + $20,000 (DAF contribution) = $38,000. Because this exceeds the $29,200 standard deduction, they itemize and capture a deduction $8,800 larger than the standard amount, producing federal tax savings of about $2,112 (8,800 × 0.24). In year two, they make no new contribution; itemizable expenses drop back to $18,000, so they take the standard deduction and enjoy no incremental tax benefit. The total two-year tax savings equals $2,112, compared with zero in the steady scenario. Spread over the two years, the average annual benefit is $1,056, effectively reducing the after-tax cost of their $10,000-per-year giving to $8,944.

The DAF growth rate matters as well. If the account earns 4 percent annually, the $20,000 contribution grows to $20,800 by the end of year one before the couple recommends $10,000 in grants. The account therefore closes year one with roughly $10,800. After another year of 4 percent growth, the balance rises to about $11,232 before the second $10,000 grant, leaving $1,232 as a cushion. That leftover can fund extra giving in year three or allow the couple to contribute slightly less during the next bunching cycle. The calculator reports this ending balance so donors can plan ahead.

Comparison table clarifies cash flow

The table generated by the tool lists each year of the cycle twice—once for the steady strategy and once for the bunching strategy. Columns show whether the taxpayer itemizes or takes the standard deduction, the size of the deduction, the resulting tax savings, the cash leaving their checking account, and the ending donor-advised fund balance. This side-by-side view makes it clear that bunching concentrates cash outflow in the first year but also concentrates tax benefits. Seeing the DAF balance grow and shrink demonstrates how the account smooths grants to charities even while tax deductions occur in bursts.

CSV export enables deeper analysis. Advisors can paste the output into planning spreadsheets to test variations such as three- or four-year cycles, alternative marginal tax rates, or changes in mortgage interest after refinancing. Nonprofit development officers can use the projections to illustrate to donors how a DAF can maintain steady support even if the donation schedule shifts. Families may also track cash requirements, ensuring they have liquidity to fund the initial lump-sum contribution without jeopardizing emergency savings.

Limitations and planning considerations

This calculator simplifies several real-world complexities. It assumes the marginal tax rate remains constant across years and across deduction levels. In reality, a large deduction in a bunching year could move the donor into a lower tax bracket or interact with phaseouts for credits, altering the savings. The tool also ignores potential alternative minimum tax considerations, qualified business income deductions, and other nuances that may influence the optimal strategy. For households with state income taxes that allow carryforward of excess charitable deductions, additional modeling may be appropriate.

Donors should also weigh the fees and policies of donor-advised fund sponsors. Administrative fees typically range from 0.6 to 1.0 percent of assets for smaller balances, plus underlying investment expenses. These costs can offset some of the growth the calculator projects. Furthermore, not all assets are deductible at full fair market value; this tool assumes cash contributions. Gifting appreciated securities can unlock additional tax benefits by avoiding capital gains, but the deduction rules differ depending on whether the assets are publicly traded. Finally, the calculator does not enforce the IRS rule that charitable deductions cannot exceed a percentage of adjusted gross income (typically 60 percent for cash gifts). High-income donors considering very large bunching contributions should confirm they will not hit those ceilings or plan to carry forward unused deductions into future tax years.

Despite these caveats, modeling the trade-offs clarifies whether bunching aligns with your philanthropic goals. If the incremental tax savings meaningfully reduces the after-tax cost of giving, a donor-advised fund may help you sustain or increase your support for beloved causes. If the savings are modest or cash flow constraints make the initial contribution difficult, steady annual giving may remain the right choice. Use the downloadable results to discuss options with a financial planner or tax professional who can integrate this strategy into a broader financial plan.