How Bunching Deductions Can Help You Exceed the Standard Deduction

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When it comes to doing your taxes, you need to know how to make your returns work for you. And one way to do this is through bunching deductions. As you may know, the standard deduction is a fixed dollar amount that you can subtract from your gross income to lower your taxable income. But you can only deduct so much – the threshold varies annually based on your filing status and inflation.  

As an alternative, you can itemize your deductions. And then there’s bunching your deductions, which could save you even more. This is grouping eligible deductible expenses into a single tax year, to push you over the standard deduction threshold. 

In this blog, we’ll cover everything you need to know about bunching deductions to help you save as much as possible on your taxes, while staying compliant. 

The Standard Deduction and How It Affects You

In a nutshell, the standard deduction is the portion of your income that isn’t subject to tax. This means it can be used to reduce your tax bill. For the 2025 tax year, the amounts are as follows: 

  • Single taxpayers or those who are married but filing separately: $14,600
  • Married taxpayers filing jointly: $29,200
  • Head of a household: $21,900

 

So what is the practical effect of these amounts on your taxes? They literally lower your taxable income. When completing your returns, you’ll subtract the standard deduction amount which applies to your filing status from your gross income, to give you your adjusted taxable income. This amount is what determines your federal tax liability. So if you’re a single filer, and you earned $50,000 in 2024, you subtract $14,600 to get a taxable income of $35,400.

The standard deduction is basically a streamlined and easy way to help you lower how much you owe the tax man, without needing to keep track of every deductible expense you may be entitled to. But there is a potential downside; it imposes a limit, so you can’t claim itemized deductions. 

When itemizing makes more sense

Itemizing deductions involves listing and claiming eligible expenses on your tax returns, to reduce your taxable income. This includes your state and local taxes (SALT), mortgage interest, contributions to charity, and medical expenses. If these kinds of deductions add up to more than the standard deduction threshold, you’d save more money by listing them individually. 

Despite this benefit, itemizing is often more complicated, because it requires thorough documentation and proof of the eligible expenses. It also makes completing your tax returns more time-consuming.  

So how do you know which option to choose? The simple answer here is to see which will save you more on your taxes. You’ll need to look at your annual deductions, and work out whether the standard deduction or itemizing will lower your taxable income. Of course, this means you’ll need to be aware of the various thresholds, as well as strategic ways to make the most of both. 

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And that includes the possibility of bunching. 

Understanding the Concept of Bunching Deductions

Bunching is a tax planning strategy in which you group your deductible expenses into a single tax year. The goal of doing this is to get the amount of your total deductions above the standard deduction threshold. That way, you can lower your taxable income more effectively. 

Bunching deductions offer you a clear benefit. With an increased likelihood of exceeding the standard deduction in at least one tax year, you get a flexible way of managing high deductible expenses. 

Of course, you don’t have to stick to one or other strategy consistently – you can choose which one makes more sense for a particular tax year. By timing payments and other deductible expenses, you can itemize deductions in some years, and take the standard deduction in others. This will allow you to maximize your overall tax savings across multiple tax years. 

Types of Deductions That Can Be Bunched

Just as not all expenses are deductible, not all deductions can be bunched. Eligible expenses include donations to charity, medical expenses, property taxes, mortgage interest, and state taxes. 

Charitable donations are one of the most straightforward to bunch, because you have control over when you pay them, and how much you give away. So by making larger donations in a single year, you can increase the total amount of deductible contributions and surpass the standard deduction threshold. You can even combine several years’ worth of planned donations into one year.

Medical and dental expenses are deductible if they exceed 7.5% of your adjusted gross income (AGI). So where possible, planning your medical procedures or expenses for the same year can help you maximize the deduction.

Property taxes and mortgage interest are also deductible. This means if you’re a homeowner, you can pre-pay property taxes or mortgage payments, or pay for two years in a single calendar year, to save on your tax return.  

State income taxes are also deductible, but are subject to the SALT cap of $10,000. So if you have variable state income tax liabilities, you could make estimated payments or adjust the timing of payments to align with other deductible expenses in a given year. However, keep in mind that if this strategy is one you want to use, you may require the input of a tax professional to ensure compliance. 

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Tax Implications of Bunching Deductions

As we’ve mentioned above, bunching deductions can save you money. But to make the most of this strategy, you need to plan carefully. 

For instance, you may need to shift your taxable income. By consolidating your deductible expenses into a single year, you can reduce that year’s taxable income and your overall tax liability. But this can mean that you’ll have no choice but to take the standard deduction the following year. 

That’s why bunching your deductions is a good idea for higher-income years, or when you expect to be bumped up into a higher tax bracket. 

You must also consider whether bunching deductions will affect your Alternative Minimum Tax (AMT). This is basically a parallel tax system designed to ensure that high-income earners pay a minimum amount of tax. Some deductions – especially when it comes to SALT – may not be allowed under AMT rules. This could reduce the effectiveness of bunching.

Potential Pitfalls to Watch Out For

Not going about bunching the right way can cause you to miss out on potential savings. And sometimes, it can land you in hot water with the IRS. 

For example, over-bunching can leave you with limited available deductions in the future. So while you save now, you’ll have higher taxable income later. This can disrupt your long-term tax efficiency. It’s also not always easy to predict your expenses, which can make it tough to accurately forecast deductible expenses for future years.

Also, be aware of any changes to tax laws. These happen all the time, and could affect your bunching strategies. Remember, for instance, that some provisions under the Tax Cuts and Jobs Act (TCJA) are set to expire in 2025

If you’re ever in doubt, get in touch with a professional. Tax experts like the team at Fusion CPA can ensure that you implement an effective strategy tailored to your unique financial situation.

For guidance on bunching deductions, or other ways to make the most of your tax strategy, schedule a Discovery Call with our team today!

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