What is the term Bunching?

Bunching is the practice of grouping your itemized deductions into a single tax year to exceed the standard deduction threshold, which can lead to more tax savings. The standard deduction can be taken in other years.

The process of how it works?

Assume that you usually spread out charitable contributions, medical expenses, mortgage interest, and state and local taxes over two years. By combining these expenses into a single year, you can increase your itemized deductions above the standard deduction level for that year.

Following statements below pertains to tax planning:

• If itemized deductions come up close to the standard deduction every year, a taxpayer can accumulate enough itemized deductions in one year to surpass the standard deduction. If itemized deductions come close to the standard deduction each year, the bundling strategy is a viable tax planning method.
• To exceed the standard deduction, a taxpayer can combine itemized deductions in one year in this case. Using the standard deduction is still an option for the taxpayer in non-bunched years.