Gift stacking, also known as gift bunching, is a great strategy to maximize charitable impact while also boosting your tax efficiency.
This strategy allows you to combine multiple years of charitable giving into one tax year, and you can increase your itemized deduction amount above the standard deduction threshold, allowing you to take advantage of more meaningful tax savings than if you would have spread those same gifts out annually.
This can be done by simply making a large gift to a charity of your choice in a given year and foregoing gifts the next, or by putting that money into a Donor Advised Fund (DAF) to fund multiple years of giving. When you pre-fund your charitable donations into a DAF, you immediately receive the full tax deduction in the year you contribute, even if the funds are not distributed to the charities until future years.
This gives you flexibility in how and when the money is given, while still locking in the tax benefit today, making gift stacking an efficient planning technique for higher-income years, or for alternating between itemizing and taking the standard deduction.
If you don’t use gift stacking and instead spread your charitable giving evenly each year, you may not receive a substantial tax benefit, or any tax benefit at all, if your annual donations do not exceed the standard deduction amount. Many people mistakenly believe that if they donate annually, they automatically receive a higher deduction, but this is not always the case.
Without gift stacking, your charitable gifts could be absorbed into the standard deduction amount, meaning that you’d lose out on potential additional tax savings that could’ve been unlocked with more strategic timing.
Combining gift stacking with a Donor Advised Fund is a powerful strategy that allows you to maximize your deductions by alternating between itemizing and taking the standard deduction while still allowing you to make consistent gifts to charity each year.
