The only definitive answer is found in the US Flag Code. TITLE 4 > CHAPTER 1 > Sec. 8(k). It states: "The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning"
Think you cut the blue field away from the stripes, cry a little, then bury.
American Legion, Boy Scouts or Cub Scouts all typically take flags in need of disposal.
I had the honor of doing many flag retirement ceremonies while Cubmaster a few years back.
We disposed by burning, but first, separated the field and the stripes, burned the white, then the red, then the blue, all while taps played softly.
When I did a flag retirement ceremony, if there was a dry eye in the house after it was over, I felt like I hadn't done my job.