Bunching Deductions: Maximize Charitable Giving and Minimize Taxes in High-Income Years

If you’ve recently sold a business, received a large inheritance, or experienced a sudden spike in income from NIL contracts or legal settlements, you’re likely facing a reality that surprises many generous families: your charitable contributions may not be saving you nearly as much in taxes as you’d expect.

The culprit? The standard deduction is now so high that roughly 90% of taxpayers skip itemizing altogether. And with the One Big Beautiful Bill Act (OBBB, H.R. 1) introducing new limitations starting in 2026, recent tax reform is making it even more important to revisit your charitable giving strategies. The window for maximizing charitable deductions is narrowing. The good news is that a strategy called “bunching” can help you increase your charitable impact while reducing lifetime taxes—without giving a single dollar more than you planned.

At Third Act Retirement Planning, we routinely model bunching strategies as part of comprehensive retirement, tax, and legacy planning for clients navigating sudden wealth and significant liquidity events. To bunch charitable contributions means consolidating several years’ worth of donations into a single tax year to maximize your itemized deductions. Here’s how it works.

How Charitable Deductions Work Under Current Law (2025–2026 Overview)

The basic principle is straightforward: charitable donations reduce your taxable income, but only if you itemize your deductions. If your total itemized deductions—including charitable gifts and other deductible expenses—don’t exceed the standard deduction, you get no additional tax benefit from your charitable gifts.

Here’s where things stand for 2025–2026:

• The standard deduction for married couples filing jointly is approximately $30,000 in 2025 (verify current IRS figures, as these are inflation-adjusted annually)

• Single filers face roughly $15,000

• State and local taxes remain capped at $10,000 under extended TCJA provisions

• Mortgage interest deductions are limited for most homeowners

Many high-income families still take the standard deduction because their deductible expenses—including charitable giving, other deductible expenses, mortgage interest, and state and local taxes—simply don’t add up to enough. A family giving $15,000 annually to their church, with $10,000 in state and local taxes and modest mortgage interest, often falls short.

Starting in 2026, OBBB preserves much of this structure while adding a new above-the-line charitable deduction for non-itemizers: up to $1,000 for single filers and $2,000 for married filing jointly. However, this excludes gifts to donor advised funds and applies only to cash donations. This means that even if you do not itemize, you may be able to deduct charitable gifts from your taxable income up to these limits, while itemizers can continue to deduct charitable gifts as part of their itemized deductions.

For those who itemize, AGI-based limits apply: cash gifts to public charities are generally deductible up to 60% of adjusted gross income, while gifts of appreciated securities are often limited to 30% of adjusted gross income agi, with a five-year carryforward for excess amounts.

What Is “Bunching” Charitable Deductions?

Bunching charitable donations means concentrating two or more years of planned charitable giving into a single tax year so that your total itemized deductions exceed the standard deduction threshold.

In a bunching year, you itemize and claim large charitable deductions. In off-years, you take the standard deduction but continue supporting your church and favorite charities through vehicles like donor advised funds.

Bunching is especially powerful in these situations:

• High-income years from a big bonus, business sale, stock option exercise, RSU vesting, or large Roth conversion

• Years just before less favorable deduction rules take effect (like the 2026 changes introducing a 0.5 agi floor and tighter itemized deduction caps)

• Any year when your marginal tax bracket is unusually elevated

The key insight: bunching doesn’t require giving more over your lifetime. It optimizes timing so you give the same amount—or more—to ministry and charitable organizations while reducing taxes.

Why Bunching Shines in High-Income and Windfall Years

The value of a tax deduction is directly tied to your marginal tax bracket. A $1 deduction saves $0.37 at the 37% bracket versus just $0.22 at 22%. The higher your income, the more valuable each deductible dollar becomes.

At Third Act Retirement Planning, we frequently see bunching opportunities in these scenarios:

• Sale of a closely held business generating a $4M taxable gain

• Sudden inheritance requiring large IRA distributions and creating higher taxable income

• NIL income spikes for college athletes earning six figures in a single year

• Exercising a large block of stock options before a company IPO or acquisition

Example: Consider a couple who normally gives $20,000 per year to their church and ministries. In 2025, they expect $800,000 of income from a business sale, placing them in the 37% bracket. Instead of spreading gifts across four years, they pre-fund $80,000 to a donor-advised fund in 2025.

Result: Their itemized deductions exceed the standard deduction, and the $80,000 charitable income tax deduction saves them roughly $29,600 in federal income tax at 37%. Had they spread that giving across lower-bracket years, the tax savings would be substantially smaller.

With the 2026 rules introducing a 0.5% AGI floor on charitable deductions and a 35% cap for top-bracket donors, bunching into 2025 locks in greater tax benefits before these limitations take effect.

Key Tax Law Changes: OBBB and the 2026 Charitable Deduction Landscape

The One Big Beautiful Bill Act (H.R. 1, signed July 4, 2025) extends many TCJA provisions but reshapes charitable deduction rules starting in 2026. Understanding these new tax provisions is essential for timing your charitable giving strategy.

Key changes affecting bunching:

• Above-the-line deduction returns (2026): Non-itemizers can deduct up to $1,000 (single) or $2,000 (married filing jointly) for cash donations. Donor-advised fund contributions are excluded.

• 35% cap for high earners: For donors in the top bracket (37%), itemized charitable deductions are effectively capped so the tax benefit maxes out at 35%, reducing marginal value.

• 0.5% AGI floor for individuals: Your itemized charitable contributions must exceed 0.5% of AGI before any deduction is allowed. At $1,000,000 AGI, you must give more than $5,000 before receiving any benefit.

• 1% floor for corporations: Corporate donors face a 1% of taxable income floor, so corporations maintain tax efficiency by strategically timing charitable giving—often bunching donations into high-profit years—and integrating these gifts with broader business strategies to optimize tax benefits and overall financial effectiveness.

Why timing matters:

2025 represents a “last chance” window to take large charitable deductions at the full 37% benefit without the 0.5% floor. After 2026, bunching still works, but donors must clear the new floors and accept the 35% cap in top brackets.

Keep in mind that tax law continues to evolve. Lawmakers may adjust thresholds or extend provisions, so verify current tax rules with a tax professional before finalizing your strategy.

The 0.5 AGI Floor and Its Impact on Charitable Giving

The introduction of the 0.5 AGI floor by the One Big Beautiful Bill Act marks a pivotal shift in how high-income families and individuals approach charitable giving. Beginning in 2026, you can only claim a tax deduction for charitable contributions that exceed 0.5% of your adjusted gross income (AGI) in a given tax year. This means that your first 0.5% of AGI given to charity each year is not deductible—only the amount above that threshold counts toward your itemized deductions.

For example, if your adjusted gross income is $800,000, you must contribute more than $4,000 in charitable donations before you can begin to deduct charitable donations on your tax return. This new tax law provision makes it more important than ever to carefully plan the timing and amount of your charitable contributions to ensure you receive the maximum tax benefits.

The 0.5 AGI floor encourages donors to rethink their charitable giving strategy. Rather than spreading gifts evenly each year, many will benefit from bunching multiple years’ worth of charitable contributions into a single tax year. By consolidating your giving, you can more easily exceed the 0.5% AGI floor and unlock valuable tax deductions that might otherwise be lost if your annual giving falls below the threshold.

Additionally, giving non cash assets—such as appreciated securities or real estate—can further enhance your tax efficiency. Not only do you avoid capital gains tax on the appreciation, but you also receive a charitable deduction for the full fair market value of the asset, provided you exceed the 0.5 AGI floor. This approach can be especially powerful in high-income years or following significant liquidity events, allowing you to align your charitable giving with your broader financial goals.

Ultimately, understanding the 0.5 AGI floor and its impact on charitable giving is essential for anyone seeking to maximize their tax deduction and charitable impact under the new tax law. By working with a financial advisor and tax professional, you can develop a charitable giving strategy that takes full advantage of bunching, asset selection, and timing—ensuring your generosity delivers both immediate tax benefits and lasting legacy.

Practical Bunching Strategies: How to Design a Multi-Year Giving Plan

Here’s the step-by-step framework we use at Third Act Retirement Planning to help clients align their charitable giving, taxes, and long-term retirement goals.

Building a 3–5 year plan:

1. Map expected income (2025–2030): Include salaries, bonuses, RSUs, stock options, business sale proceeds, RMDs, and Roth conversions

2. Estimate baseline annual giving: Calculate your typical church tithes, Christian ministries, and nonprofit organizations you support

3. Identify 1–2 bunching years: Target years with unusually high income or favorable tax law (e.g., 2025 before the 2026 floor and cap)

4. Aggregate multiple years worth of gifts: Commonly bunch 2–4 years of giving into a single tax year

5. Choose vehicles: Direct gifts, DAFs, charitable remainder trusts, or other planned giving structures depending on your financial plan

Asset selection for bunching:

Giving appreciated assets rather than cash can significantly enhance tax efficiency:

• You avoid capital gains tax on the appreciation

• You deduct the full fair market value (not just your basis)

• You can rebalance concentrated positions without triggering taxable gains

Non cash assets like long-term appreciated stock (held over one year) are particularly effective. Short-term holdings only allow deduction of basis, eliminating much of the benefit. AGI limits typically cap appreciated asset gifts at 30% of adjusted gross income, with a five-year carryforward for excess amounts.

Integration with retirement planning:

• Coordinate bunching with Roth conversions in high-income years—both strategies thrive when you’re intentionally in a higher bracket

• Evaluate whether bunching during final high-earning years before retirement can reduce future RMDs and Medicare IRMAA surcharges

• Consider qualified charitable distributions (QCDs) if you’re 70½ or older—up to $105,000 (2025 indexed) bypasses AGI entirely

Using Donor-Advised Funds (DAFs) to Bunch While Keeping Giving Smooth

A donor-advised fund is an account at a sponsoring charity where you receive an immediate tax deduction when you fund it, then recommend grants to churches and charities over time. The assets can grow tax-free inside the fund.

Why DAFs pair naturally with bunching:

• Contribute 3–5 years of charitable gifts in one high-income year

• Claim the full deduction immediately

• Distribute grants to ministries annually, maintaining steady support as if you were giving each year normally

Example: A couple normally gives $25,000 per year. In 2025, when their income reaches $600,000, they contribute $75,000 of appreciated stock to a DAF. They itemize in 2025, claiming the charitable deduction and avoiding owe capital gains tax on the stock’s appreciation. In 2026 and 2027, they take the standard deduction but still direct $25,000 annually from the DAF to their church and favorite ministries.

OBBB interaction: While the new above-the-line deduction for non-itemizers in 2026 excludes DAF contributions, DAF gifts still generate substantial itemized deductions for those who bunch contributions in high-income years. Track timing carefully to navigate the 0.5% AGI floor after 2026.

Coordinate with an advisor to:

• Ensure DAF contributions fit your broader estate and legacy plan

• Avoid accidentally overfunding relative to long-term charitable goals

• Decide whether to name children or ministries as successor advisors

Bunching, Biblical Stewardship, and Legacy Planning

Bunching charitable deductions isn’t just about tax advantages—it’s about diligent planning that honors biblical principles. Proverbs 21:5 reminds us, “The plans of the diligent lead surely to abundance.”

How bunching supports faith-driven stewardship:

• Consistent church support: Even when tax rules change, bunching with a DAF allows you to maintain steady support for your local church and missions

• Long-term ministry funding: Fund scholarships, community projects, or Christian ministries for years to come through planned giving structures

• Estate integration: Use charitable bequests or name charities as beneficiaries on IRAs to reduce your taxable estate and federal estate tax exposure while maximizing legacy impact

Sudden wealth from a business sale, inheritance, or NIL income often raises profound questions: “How much is enough?” and “How do I help my children without harming them?” A thoughtful charitable giving strategy—integrated with your financial plan—can reflect those convictions while providing immediate tax benefits.

Consider involving adult children in discussions about family generosity. The bunching plan and DAF become practical tools to teach stewardship and generosity across generations, addressing questions about the gift tax exemption and legacy giving.

Common Mistakes to Avoid When Bunching Charitable Deductions

Poor execution can reduce or even erase the expected tax benefits of bunching. Here are the most common pitfalls:

• Mis-timing gifts: Making large contributions in a low-income year instead of aligning with a high-income or pre-2026 year

• Failing to exceed thresholds: Not clearing the standard deduction or the new 0.5% AGI floor after 2026, gaining little benefit

• Donating short-term assets: Giving appreciated assets held less than one year limits your deduction to basis only—you lose the ability to deduct full fair market value

• Giving to non-qualified recipients: Contributions to individuals or non-501(c)(3) entities don’t qualify for a tax deduction

• Poor record-keeping: Missing written acknowledgments for gifts of $250+ or proper appraisals for large non-cash assets ($5,000+ threshold)

• Overlooking state taxes: State income tax rules may differ from federal; some states don’t conform to new tax rules

• Failing to coordinate advisors: Bunching, Roth conversions, business sales, and estate strategies should complement each other

Work with your CPA, estate attorney, and financial advisor together—not in silos—to ensure your tax strategy is cohesive. This article is for educational purposes only and does not constitute legal or tax advice.

How Third Act Retirement Planning Helps You Implement a Bunching Strategy

At Third Act Retirement Planning, we serve as a fee-only, fiduciary wealth management firm focused on people experiencing sudden or significant liquidity events—inheritance, business exits, settlements, NIL income, and other windfalls.

Our process for clients considering bunching:

1. Discovery: Clarify your calling, charitable passions, and desired impact, including faith and biblical stewardship priorities

2. Analysis: Build multi-year cash-flow and tax projections (2025–2030) showing bunching impact versus not bunching, incorporating OBBB and 2026 rules

3. Design: Select optimal bunching years, determine amounts, and choose vehicles (DAF, direct gifts, appreciated stock, real estate, or QCD strategies for those 70½+)

4. Implementation: Coordinate with your CPA and estate attorney to execute contributions, document gifts properly, and update beneficiary designations

5. Ongoing guidance: Adjust as tax law, income, markets, or family goals change

We’re based in Marietta, Georgia but serve clients across multiple states. Thomas Cloud, Jr., as a Qualified Kingdom Advisor, integrates biblical wisdom with technical tax and investment planning to help you align charitable giving with your broader financial plan.

If you’re facing a high-income year in 2025 or anticipating significant liquidity events, schedule a discovery call well before year-end. There’s still time to implement a strategy that could save tens of thousands in taxes while supporting the causes you love.

Conclusion: Aligning Generosity, Taxes, and Your Third Act

Bunching deductions is a practical, legal way to receive greater tax benefits from charitable giving—especially in high-income or windfall years. By concentrating multiple years of charitable contributions into strategically chosen tax years, you can deduct charitable donations more effectively, avoid capital gains tax on appreciated assets, and maintain steady support for the organizations that matter most.

The 2025–2026 tax law changes under OBBB make timing more critical than ever. With the 0.5% AGI floor and tighter itemized deduction caps taking effect in 2026, pairing philanthropic planning with thoughtful tax strategy now can lock in advantages before they diminish.

Your situation is unique. The concepts here are general, and each family’s circumstances require personalized analysis. We encourage you to work with a qualified financial advisor and tax professional before acting. If you’d like to explore how bunching—alongside Roth conversions, estate planning, and investment management—can support your third act of life and stewardship, we’d welcome the conversation. Contact Third Act Retirement Planning to start the discussion.