Most people claim the standard deduction on their federal tax return instead of itemizing deductions, but that means losing out on potential tax benefits for charitable giving. If you regularly donate to charity but don't quite meet the threshold for itemizing deductions, you may be able to optimize your tax deductions through a strategy called "donation bunching." Here's how it works and why it can benefit certain taxpayers.
What is donation bunching?
Donation bunching involves planning your charitable giving so you itemize your deductions every other year. So, those who find themselves stuck between taking the standard deduction or itemizing could reach more tax savings by “bunching” two years of charitable contributions into one year; they itemize deductions for one year, and then take the standard deduction the next year.
The case for donation bunching
Many taxpayers are better off taking the standard deduction each year. But those who consistently give substantial amounts to charity can benefit from donation bunching. If your total itemized deductions routinely exceed your standard deduction, bunching donations can boost your itemized years. This Bunching and Tax Savings Calculator can help you determine if bunching contributions might provide you with more tax deductions. Let's take a look at an example.
Let's say a married couple has $23,000 in itemized deductions, which includes $10,000 in charitable donations. The standard deduction for a married couple filing jointly in 2023 was $27,700. Therefore, this couple takes the standard deduction in 2023.
In 2024, this couple has the same itemized deductions. Again, this is below the standard deduction this year, so they take the 2024 standard deduction of $29,200 for joint filers. Over the two years combined, they will have deducted around $56,900.
However, if instead of spreading out their charitable donations over the two years, the couple "bunches" the deductions by making $20,000 in charitable donations in 2023, their itemized deductions for that year total $33,000. Then, in 2024, they take the $29,200 standard deduction. The result: $62,200 in deductions in the two years combined. With this option, the couple has $5,300 of additional tax deductions over the same two-year period.
Is donation bunching right for you?
Donation bunching makes the most sense if:
You give sizable donations exceeding the standard deduction each year.
Your income fluctuates year-to-year.
You won't lose deductions by alternating between standard and itemized.
Talk to your tax advisor to see if donation bunching could benefit your tax situation. With some planning, you can optimize your charitable giving.