The Veterans of Foreign Wars suggests this:
SUGGESTED PROCEDURE FOR INDIVIDUALS TO USE IN PRIVATE OR PUBLIC FOR DISPOSING OF A TORN, SOILED, OR BADLY FADED U.S. FLAG.
The Flag should be folded in its customary manner. (VFW Members: See current VFW Citizenship Education Program Chairman's booklet or VFW Ritual book.)
It is important that the fire be sizeable and of sufficient intensity to ensure completes burning of the Flag.
Place the Flag on the fire.
The individual(s) can come to attention, salute the Flag, recite the Pledge of Allegiance and have a brief period of silent reflection.
After the Flag is completely consumed, the fire should then be safely extinguished and the ashes buried.
Please make sure you are conforming to local/state fire codes or ordinances.