The concept of bunching deductions involves maximizing tax benefits by timing your deductible expenses. This is the way it works:

• Instead of dispersing deductible expenses (like charitable donations, medical expenses, or property taxes) evenly throughout multiple years, you'segregate' them into one tax year. This permits you to surpass the standard deduction threshold for that year and list your deductions, which could lead to a reduction in your taxable income. The standard deduction can be used instead in the following year.

• In order to make tax planning easier, the cash-basis taxpayer can combine itemized deductions in one year to exceed the standard deduction.

• The standard deduction can still be used by the taxpayer in non-bunched years.

• An effective tax planning strategy is achieved when itemized deductions are close to the standard deduction each year.

For example: How can a donor shift the donation of $4,000 paid in 2024 into the year 2023?

• The standard deduction in 2023 is $27,700 and in 2024 it is $29,200.
• The estimated itemized deduction for 2023 is $30,100 and for 2024 it is $30,100.

A donor can move a $4,000 donation from 2024 to 2023 and increase the itemized deduction for the year 2023 to lower taxes and increase deduction. Thus, the itemized deduction for the year will be $34,100 ($30,100 + $4,000).

The taxpayer has the option to reduce their taxable income by $3,100 for two years as follows:

• Itemized deduction for the year 2023 and 2024 without bunching or shifting from one year to another year is $60,200 (30,100 + $30,100)
• Itemized deduction with bunching $63,300 ($34,100 + $29,200).

Therefore, a tax payer can reduce taxable income over two years $3,100 ($60,200 - $63,300).