Bunching deductions and donor advised funds

How it works

A donor advised fund is an account at a sponsoring charity, often run by a brokerage or a community foundation. A gift of cash or appreciated shares into the fund is a completed charitable gift in the year it is made, deductible then under the same percent of income caps as any charitable gift. The money is then invested inside the fund and granted out to charities in later years on the donor's recommendation, with no further deduction when the grants go out. By putting two or three years of giving into the fund in one year, the itemized total that year can pass the standard deduction of this year's official standard deduction single (not yet verified here; see the official source below) or this year's official standard deduction married (not yet verified here; see the official source below), and in the other years the standard deduction is taken. Sponsors charge a yearly fee, and gifts into the fund cannot be taken back.

What it gives

Several years of gifts can earn a deduction in one year while the standard deduction is taken in the others.

The fund accepts appreciated shares and handles the sale, which small charities cannot.

Grants can go out on any schedule, and a donor's giving to each charity can stay steady.

What it costs, or where the catch is

The gift into the fund is final, and the money can only go to charities.

The fund charges an administrative fee and the investments carry their own costs.

The arithmetic only works when the bunched total actually beats the standard deduction.

A worked example

Margo gives $8,000 a year to her church and her itemized total with that gift is $26,000, below a married standard deduction of $29,000, so she gets nothing for the gifts. Instead she puts $24,000 of appreciated shares into a donor advised fund in one year, three years of gifts. That year her itemized total is $42,000, which is $18,000 plus $24,000, beating the standard deduction by $13,000. The next two years she takes the standard deduction while the fund sends $8,000 a year to the church.

Where it goes wrong

The common miss is bunching an amount that still falls under the standard deduction, which earns nothing extra while locking the money in the fund.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Donor advised funds. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.