Bunching Deductions in Alternate Years
After the release of the TCJA in 2018, taxpayers saw an increase in the standard deduction pertaining to the filing status as follows: $12,200 single taxpayers and married filing separately, $18,350 for head of household, and $24,000 for married filing joint and surviving spouses. Also, including the state and local tax (SALT) deductions being limited to $10,000. Taxpayers are finding it more difficult to itemize under the new tax laws. However, there is a strategy regarding the ability to use certain itemized deductions to their fullest for alternate years. This strategy is bunching or increasing medical and charitable contributions into alternate years. Consider using a credit card for medical expenses that you expect to incur in 2020. Examples of using a credit card in this instance are paying for prescriptions or any outstanding doctors visits. Regarding charitable contributions, it could be beneficial to use a donor-advised fund (DAF) in order to bunch those contributions. For example, if you are planning to donate $5,000 per year for the next three years (2019-2021) to any qualifying charity of choice, you are able to pay the full $15,000 to a DAF in the current year (2019) to utilize the full itemized deduction instead of taking $5,000 for each of the next three years (2019-2021) respectively. This strategy is applicable for all preceding tax years but is more advantageous during the period of the TCJA (2018-2025). This method of reporting gives the taxpayer a greater deduction due to the grouping of alternate year expenses.
- Journal of Accountancy