Early Birds

When “back to school” enters your vocabulary, you know the rest of the year will go by in a flash! That is why it is important to check in on your charitable goals for 2026 before fall gets into full swing. Otherwise, you may find yourself scrambling to synchronize tax planning, financial planning, and gifts to favorite nonprofits.

In particular, a technique called “bunching” is important to consider as you get a jump on your year-end charitable giving plans.

Even just a few years ago, few people had heard of “bunching” since the standard deduction (which itself has an interesting history) under the Internal Revenue Code’s income tax rules was much lower than it is now. Many donors easily met the criteria to itemize deductions, including their charitable contributions, on their income tax returns. This changed after the Tax Cuts and Jobs Act of 2017 significantly increased the standard deduction starting in 2018.

Further changes to the charitable deduction rules under 2025’s One Big Beautiful Bill Act increased the complexity of charitable deduction thresholds because the new law, effective for 2026, imposes a 0.5% of adjusted gross income (AGI) floor for itemized charitable deductions and, for taxpayers in the highest tax bracket, a 35% cap on the tax benefit of those deductions. All of this means that thoughtful charitable planning is more important than ever.

Because of changes in the tax laws, “bunching” charitable gifts may be useful to you, and it is something you ought to discuss with your tax and financial advisors as soon as you can. The essence of bunching is that, rather than making similar-sized charitable donations every year, you would combine two or more years of charitable gifts up front into a single tax year. This is useful because by concentrating gifts into one year, you may be able to accumulate enough deductions to make itemizing more beneficial than claiming the standard deduction and achieve a greater tax benefit than you would by making smaller annual gifts and taking the standard deduction.

A donor advised fund at the East Tennessee Foundation makes bunching especially attractive. For example, you can contribute several years’ worth of charitable gifts to your donor advised fund this year, generally be eligible to claim an income tax deduction for the current year, subject to applicable limitations, and then recommend grants to your favorite nonprofits over several future years. This allows your favorite organizations to continue receiving steady support while simultaneously maximizing your own tax benefits.

Remember, too, that your donor advised fund at the East Tennessee Foundation accepts appreciated securities, which may provide additional tax advantages in the right circumstances since you may be able to avoid capital gains tax on the highly appreciated stock you contribute to your donor advised fund.

Now is the time to begin conversations with your tax and financial advisors about bunching and about your charitable plans in general. Please loop in the East Tennessee Foundation team to serve as a sounding board as you carry out your charitable wishes. The East Tennessee Foundation is your home for charitable giving, and we always welcome a conversation.

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation.