Washington News

With the doubling of the standard deduction in 2018, the number of taxpayers who itemized deductions declined substantially. In 2017, nearly 30% of taxpayers itemized, but with the larger standard deductions, only about 10% of taxpayers will itemize this year.

The standard deductions in 2018 doubled to $24,000 for married couples and $12,000 for individuals. The married standard deductions increased to $24,400 in 2019 and $24,800 in 2020. Individual standard deductions are one-half the married number.

What tax planning strategy might benefit generous taxpayers who know there is a large standard deduction and still desire to help a favorite charity? Let's consider the options for two generous families – John and Mary Jones and Harry and Susan Green.

Both couples pay $8,000 in state and local taxes and $7,000 in home mortgage interest. They each give $8,000 to their favorite charity each year. Their total itemized deductions are $23,000 per year.

Because the standard deduction is larger than their $23,000 in itemized deductions, John and Mary take the $24,400 standard deduction in 2019 and $24,800 amount in 2020. Their total deductions over two years are $49,200.

Meanwhile, Harry and Susan decide to "bunch" their charitable deductions. They give $16,000 in 2019 and nothing in 2020. Because their 2019 itemized deductions of $31,000 are more than the standard deduction, they elect to itemize their deductions. In 2020, they take the standard deduction of $28,800. Their total deductions are $55,800.

Bunching Charitable Deductions

Family	Deductions for 2019 and 2020
Harry and Susan	$55,800
John and Mary	$49,200
Added Deduction	$6,600

By "bunching" their deductions, Harry and Susan increase their tax savings from their charitable gifts. The $6,600 increased deductions may save $1,848 in their 28% federal and state income tax brackets.

Editor's Note: If your combined state and local tax, home mortgage interest and charitable gift deductions are close to the married or individual standard deductions, you may want to visit with a tax advisor about "bunching" your charitable gifts. Making larger charitable gifts every other year could be an excellent tax-saving strategy.