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Bunching Deductions in Alternate Years

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