By Ted Stricker, CFP®
“Bunching” charitable contributions before year-end can be a smart tax strategy if your total itemized deductions fall just below the standard deduction amount. By combining multiple years’ worth of donations into a single year, you can itemize that year for greater tax savings and then take the standard deduction in the following years.
Many of our clients at Bernath + Rosenberg consider charitable giving an element of their daily lives and turn to us to fully understand and implement ways to maximize the benefits of philanthropy. This service is important not only as a tax strategy, but how we develop an understanding of your philanthropic intentions that includes annual gifts as well as the creation of a long-term legacy plan that reflects your values.
When Bunching Contributions Is a Good Idea
This strategy is most effective for taxpayers who consistently give to charity but whose annual itemized deductions are consistently close to, but do not exceed, the standard deduction. Bunching may also be advantageous in these situations:
- High-income years: You can accelerate your donations into a year when you have an unusually high income from a large bonus, investment gains, or other sources to offset your higher tax liability.
- Approaching retirement: As you near retirement, you can front-load your charitable giving in higher-income years to maximize tax benefits before your income potentially decreases.
How to Use a Donor-Advised Fund to Bunch Contributions
For donors who want to bunch their tax deductions but prefer to distribute grants to their favorite charities consistently, a donor-advised fund (DAF) is an ideal tool. Here is how such an account can help you fulfill your charitable intentions and bunching contributions in a tax year.
- Fund the DAF: Make a lump-sum contribution of cash or appreciated assets (like stock) to the DAF in your high-donation year and claim the tax deduction immediately.
- Continue regular giving: You can then recommend grants from the DAF to your chosen charities over the next several years, even while taking the standard deduction on your taxes.
- Grow your donation: Funds contributed to a DAF can also be invested for potential tax-free growth, allowing your donations to have an even greater impact over time.
Bunching Deductions With the New SALT Cap
Recent tax legislation this year raised the SALT (state and local tax) cap from $10,000 to $40,000 for tax years 2025 through 2029 for eligible taxpayers (begins to phase out above $500,000 and drops to $10,000 limit above $600,000). This elevated cap makes it more likely that total itemized deductions will surpass the standard deduction, especially for those in high-tax states such as New York and New Jersey.
Nevertheless, bunching deductions remains an effective tax strategy, since the temporary nature of the increased SALT cap amount (reverts to $10,000 in 2030) could mean taxpayers may only have a window of opportunity to strategically take advantage of this higher SALT limit.
One approach may be to alternate years between a “bunching year” and a “standard year” as follows:
- Bunching Year: You make extra charitable contributions (e.g., two years’ worth to a donor-advised fund) and maximize the SALT deduction up to the $40,000 limit, thereby providing a larger overall tax deduction in this first year.
- Standard Year: The following year, you’d take the normal standard deduction, which is now more beneficial than lower itemized deductions, since you’re already donated this second year’s charitable contributions.
Key Deadlines and Rules for Year-End Giving
To ensure your contributions count for the current tax year, it is crucial to follow timing rules.
- Mailed checks: The check must be postmarked by December 31.
- Credit/debit cards: The charge must be processed by the charity before the end of the year.
- Stock transfers: The transfer must be completed by December 31.
- Documentation: For donations of $250 or more, you must have a written acknowledgment from the charity to prove your donation.
Unsure How Charitable Giving May Benefit Your Wealth & Future Goals? Talk With Us.
Coordinating philanthropy and tax strategies with other financial goals (such as retirement) and multi-year tax planning are all core services at Bernath + Rosenberg. We’re here to help you!
Our experienced team of Certified Public Accountants and CERTIFIED FINANCIAL PLANNER® professionals stays current with the latest in tax laws and financial planning strategies to help you pursue a rewarding and comfortable retirement, save on tax liability, and plan for your family’s future, according to your unique and special objectives.
To get started and make the most of your hard work, schedule a meeting by calling (212) 221-1140 or email tstricker@brwealth.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
About Ted
Ted Stricker is a partner and financial advisor at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 26 years of experience in the financial services industry, Ted manages the firm’s wealth management team, and specializes in designing financial plans for business owners and affluent families. Since joining the team in 2015, he provides practical and sound advice, combining comprehensive approaches and solutions that reflect clients’ personality, lifestyle, and goals.
For the ninth year in a row, Bernath + Rosenberg has been named as one of the leading CPA firms in financial planning by Accounting Today, a publication that receives hundreds of submissions each year and features the Top 150 Firms in the nation. Ted is a CERTIFIED FINANCIAL PLANNER® practitioner and is a member of the Financial Planning Association. To learn more about Ted, connect with him on LinkedIn.
Professionals associated with Bernath & Rosenberg P.C. may be either (1) registered representatives with, and securities and advisory services offered through LPL Financial, Member FINRA/SIPC, a registered investment advisor; or (2) solely tax professionals of Bernath & Rosenberg P.C., and not affiliated with LPL Financial. Tax/accounting/CPA-related services offered through Bernath & Rosenberg P.C. is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax/accounting/CPA-related services.
The information contained in this email message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution, or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.
