Donor-advised fund bunching: give the same, deduct far more

The numbers

Picture a married couple with $1.2 million of income who give $40,000 a year to charity. At their income, the SALT deduction is limited to $10,000. They have no mortgage interest. We compare giving $40,000 each year with putting five years of giving, $200,000, into a donor-advised fund in year one.

For illustration purposes. Tax law may change, which may change these calculations slightly.

Personal deductions over five years (federal)

Same $200,000 to charity, $112,800 more in deductions. At the 37% bracket, where itemized deductions are worth about 35 cents per dollar starting in 2026, that’s roughly $39,500 less federal tax. Oklahoma tax is figured separately.

How the yearly figure works: $40,000 of gifts, minus the 0.5% floor ($6,000 at $1.2 million of income), plus $10,000 of SALT, equals $44,000. Bunching pays the floor once instead of five times.

Give appreciated stock instead of cash and the savings grow. If the $200,000 were stock bought for $50,000, giving it directly avoids tax on the $150,000 gain, about $35,700 at the 20% capital gains and 3.8% net investment income tax rates.

How it works

1. Open a donor-advised fund. DAFs are offered by community foundations and major financial firms. The sponsor is a public charity.
2. Contribute several years of giving at once. Cash or, often better, appreciated stock held more than a year. You get the deduction in the year you contribute.
3. Itemize in the bunching year. Your charitable gift, plus other itemized deductions, far exceeds the standard deduction.
4. Take the standard deduction in the other years. In 2026 it’s $32,200 for married couples filing jointly.
5. Recommend grants over time. Your church, school, and causes keep receiving your support on the same schedule. The money can be invested and grow tax-free while it waits.

Who it fits

• Owners who give steadily, $20,000 or more a year.
• Owners with a spike in income: a big profit year, a Roth conversion, or the year a business is sold. A large deduction is worth more in that year.
• Anyone holding highly appreciated stock they’d like to give instead of cash.

When it doesn’t work

• Gifts that must go to a specific charity with strings attached, or that would provide you a benefit, like event tickets.
• Smaller givers who wouldn’t itemize even with bunching. From 2026, non-itemizers can deduct up to $1,000 ($2,000 married) of cash gifts to charities, but gifts to a DAF don’t count for that deduction.

The rules

• The 0.5% floor (2026 and later). Only itemized charitable gifts above 0.5% of your adjusted gross income are deductible.
• The 35% cap for the top bracket (2026 and later). For taxpayers in the 37% bracket, the tax value of itemized deductions is limited to about 35 cents per dollar.
• AGI limits. Cash gifts to a DAF are deductible up to 60% of AGI, and appreciated stock up to 30% of AGI. Amounts above the limits carry forward up to five years.
• No personal benefit. DAF grants can’t pay pledges you’re personally bound to, buy tickets or tables, or benefit you or your family.
• Records. Keep the sponsor’s written acknowledgment for every contribution. Gifts of non-cash property over $5,000 other than public stock generally need a qualified appraisal.

Risks and costs to weigh

• It’s irrevocable. Once contributed, the money belongs to the fund and must go to charity.
• Fees. DAF sponsors charge administrative and investment fees. Compare them.
• Rules change. Charitable deduction rules changed for 2026 and can change again, so we revisit the plan each year.

How we handle it for clients

With a Cannon & Brown tax plan, we time your giving to your income: we find the year a bunched gift is worth the most, choose which assets to give, and check the 0.5% floor, the 35% cap, and the AGI limits before you give. Because our technology keeps your numbers current all year, we can show you the before-and-after with your real numbers well before year end. Your tax strategist reviews every recommendation.

Illustrative example. The couple and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes married filing jointly, $1.2 million of adjusted gross income every year, $10,000 of deductible state and local taxes, no other itemized deductions, the 2026 standard deduction in each year, and about 35% tax value for itemized deductions. This page is educational and is not tax or legal advice for your situation; tax rules and limits change.