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Many Arkansans who give regularly to their house of worship or favorite charities have discovered a smart way to increase their impact while maximizing tax benefits: bunching charitable gifts through a donor-advised fund (DAF).
When Congress increased the standard tax deduction, millions of Americans stopped itemizing their deductions each year. While this simplified tax filing for many, it also meant that fewer people could deduct their annual charitable gifts. That is where the bunching strategy comes in.
Instead of spreading out donations evenly every year, more taxpayers are choosing to “bunch” several years’ worth of charitable contributions into a single tax year. By doing so, they can itemize deductions that year and take the standard deduction in the following one or two years — then repeat the cycle.
A donor-advised fund is the ideal tool for this approach. You can contribute cash or appreciated assets, such as stocks, to a DAF and receive an immediate charitable deduction, as allowed by the IRS, to offset that year’s tax burden. Once the funds are in your DAF, you can take your time deciding which charities to support — next year or even several years later.
DAFs are also valuable for people experiencing a liquidity event, such as an inheritance, business sale or large bonus. For example, someone who receives a big bonus on Dec. 28 can make a DAF contribution before year-end to capture the deduction immediately, then recommend grants to charities later. This removes the pressure to choose organizations in the final days of the year.
Beyond tax advantages, families appreciate DAFs to teach children about generosity and community. Because a DAF is a dedicated charitable account, parents can involve their kids in deciding where to give. Younger children might suggest a classroom project, teens might support an animal shelter, and young adults might choose a food bank where they volunteer. Many families even deliver DAF grant checks in person, experiencing the joy of seeing their gifts at work.
DAFs also offer simplicity and growth potential. Many are invested, allowing charitable dollars to grow tax-free over time. Recordkeeping is easier, too: One charitable receipt replaces a stack of year-end acknowledgments.
Finally, some DAF sponsors provide strategic giving support, helping donors identify effective nonprofits aligned with their interests — such as literacy, workforce development or food security — within their community or region.
In short, bunching charitable contributions through a DAF allows donors to give more strategically, maximize tax benefits, and make a lasting difference in the community they love.
Ashley Riggin Coldiron, chief development officer at the Arkansas Community Foundation, is a lifelong Arkansan with more than 30 years in the nonprofit sector and a Donor-Advised Fund Professional, American College of Financial Services.
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