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You may be able to lower your taxes by “bunching” itemized deductions. Bunching involves either delaying or speeding up certain deductible expenses with the intention of incurring them in one given year based on when they’ll give you greater tax savings. It’s a strategy that can make sense especially late in the year, when you might have a relatively clear picture of your current tax situation versus what it will be next year.  

The Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction to $12,000 for singles and $24,000 for married couples filing jointly. As a result, a lot fewer filers will itemize deductions starting with their 2018 tax returns. However, bunching your deductions may allow you to clear the higher hurdles to itemizing, even if you’re able to get this tax benefit only every other year.

Let’s say you plan to undergo elective surgery within the not-too-distant future, but you’re flexible on the timing. Will incurring the expense this year push you over your standard deduction threshold and let you itemize and achieve greater tax savings? Or, would you better off, tax-wise, if you were to put off incurring the expense until next year?  

Similarly, let’s assume you’re in the habit of making an annual contribution to your favorite charity. You might consider contributing every other year instead of annually, with each contribution equal to double the amount you would otherwise give each year. Again, your goal would be to exceed the standard deduction threshold in the year of bunched deductions. Many taxpayers follow this strategy in either December or January, submitting two checks that both show the year for which the donations are being made.

In addition to charitable donations and elective medical expenses, real estate taxes and state and local taxes may be “bunchable” for more tax savings on your federal return. The TCJA has, however, limited the deductibility of real estate and state and local taxes.

Webinar: 10 Tax Breaks You May Be Overlooking

Register below for EY’s “10 Tax Breaks You May Be Overlooking” webinar to learn about missed opportunities for reducing your taxes, including certain deductions and credits that will put more money in your wallet.

Actively-contributing members of the Annuity Plan can also register for the webinars through the EY Financial Planning Center® website at https://pbucc.eyfpc.com, or by contacting an EY financial planner at 1.877.927.1047. Following the webinar, the EY Financial Planner Line® will be available to answer questions about your financial planning needs.

This article is used with permission of Ernst & Young LLP

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