Bunching: Not the Solution Taxpayers Are Envisioning

 

The Tax Cuts & Jobs Act of 2017 increased the standard deduction for single filers from $6350 to $12,000 and for spouses filing jointly from $12,700 to $24,000.  In addition, the TCJA limited to $10,000 the combined deductions for State income taxes and real estate taxes (the “SALT” deduction) and eliminated all miscellaneous deductions subject to the 2%-of-adjusted-gross-income limit.  Consequently, many taxpayers—particularly those who do not have deductible mortgage interest—will no longer itemize deductions starting with tax year 2018.

 

There's been a lot of talk about “bunching” charitable donations as a solution for taxpayers whose itemized deductions will not exceed their increased standard deduction in 2018 and beyond. Bunching simply means consolidating donations into a single target year with the goal of being able to deduct charitable donations by itemizing in the target year.  Unfortunately, while bunching sounds like a good strategy to help taxpayers capture "lost" charitable income tax deductions and encourage donors to continue their pre-2018 level of charitable giving, most taxpayers will not achieve the tax-saving results they anticipate. 

 

The math is simple, but most taxpayers will need to visualize how much a bunching strategy might allow them to exceed their standard deduction in any given year.  The Charitable Deduction Estimator below does just that.  

Enter the taxpayer's information in Section One of the Estimator.  An estimate of the amount of deductions that exceed the taxpayer's standard deduction in each target year appears at the bottom Section Two.  The results may surprise you.  For example, a married couple, both over age 65 with zero mortgage interest deduction who, in prior years, were able to deduct 100% of their annual $5000 charitable donation could see as little as $1900 in deductions that exceed their standard deduction after bunching for 4 years.

 

 

This website and all materials appearing herein are presented solely for educational purposes and cannot be relied upon by anyone for elder law, estate planning, tax or any other purpose.  You must seek advice from competent legal, financial and tax advisors before attempting any form of elder law planning or any other form of estate planning.  Nothing presented on this website implies or creates an attorney-client relationship between a site visitor and the author, Jay H. Krall.  Attorney Krall is licensed by the North Carolina State Bar and not in any other state.  Links to other internet sites are not endorsements of any products or services described at those sites.   

Circular 230 Disclosure: Pursuant to U.S. Treasury Department Regulations, we are required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

© 2020 Jay H. Krall,  Attorney at Law

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