The 2018 tax law almost doubled the standard deduction for most taxpayers.
If you filed a joint tax return, the standard deduction for 2018 jumped from $12,700 in 2017 to $24,000. Combined with the new limit of $10,000 on state tax deductions, many taxpayers who itemized deductions in previous years now benefit more by claiming the standard deduction.
With a little advanced planning, you may be able to increase your tax deductions by timing when you make charitable contributions.
“Bunching” Charitable Contributions
Bunching charitable deductions is a tax strategy where you alternate between taking the standard deduction one year and itemizing the next.
The strategy is best illustrated with a simplified example (note: the example does not factor in inflation, so consult with your financial advisor when planning for your specific needs).
Let’s assume a couple typically donates $6,000 to charity each year and this year, they have the following expenses:
The total of these items is $25,500 — less than the $27,700 standard deduction for couples in tax year 2023. So, they claim the standard deduction and will not itemize. In other words, they will deduct $27,700 regardless of the $6,000 they donated to charity.
Instead of donating $6,000 in a single year, this couple could consider “bunching” its donations by making two $6,000 donations, for a total of $12,000 in 2023. And, make no donations next year in 2024.
Using the same example above, an additional $6,000 (totaling $31,500) would put them over the standard deduction and they would itemize. Next year, they might not itemize.
The same “bunching” strategy would be repeated every other year. Only the timing of the donations changes. The amount of support stays the same over time.
What If My Favorite Charity Needs the Funds Every Year?
Many charities depend on loyal donors to donate a certain amount every year. One way to meet both of your goals would be to make your charitable contributions through a donor-advised fund (DAF) at San Diego Foundation.
You receive a tax deduction when you transfer the cash or other assets to your DAF. You then grant the money to your favorite charity each year at the timing you and the charity expect.
Charitable Contributions 2024 Standard Deduction
The tax year 2024 adjustments described below generally apply to income tax returns filed in 2025.
- The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023.
- For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023;
- For heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
The larger standard deduction means some donors are less likely to receive a tax benefit for their charitable contributions unless they apply charitable bunching strategies.
Please consult your tax advisor and a charitable planning expert at SDF to help ensure your charitable donations continue to work for you and your favorite charity.
