Written by: Caleb Lund, CAP® and Hayden Adams, CFP®
Insights and strategies from Schwab CharitableTM to help you learn how your clients can increase their tax savings by using both the standard deduction and itemized deductions.
The standard deduction has more than doubled since enactment of the Tax Cuts and Jobs Act in 2017, with a major increase between 2023 and 2024 just announced by the IRS. Because of these increases, many clients who historically itemized deductions may find it advantageous to take the standard deduction in the future.
Standard deduction amounts
However, your clients who are charitably inclined and find themselves on the margin between taking the standard deduction or itemizing could maximize their tax benefits by “bunching” two years of charitable contributions* into one year, itemizing deductions for that year, and taking the standard deduction the next year.
Case study: how exactly does this bunching strategy work?
Alison and James are a married couple filing jointly with no children. Annually, they have $23,000 of itemized deductions, including $10,000 in donations to a donor-advised fund.
Option 1: Because their total deduction amount is below the standard deduction for both 2023 and 2024, Alison and James could take the standard deduction each year, and over two years they would claim a total of $56,900 in overall deductions.
Option 2: If Alison and James instead decide to take a more tax-smart approach and bunch their 2023 and 2024 donations into a single year (2023), they could end up with a larger overall deduction for the two-year period. Rather than donating $10,000 to charity each year, the couple donates $20,000 in 2023, making their itemized deductions for that year total $33,000. Then in 2024 they take the $29,200 standard deduction. With this option, the couple has $5,300 of additional tax deductions over the two years. In addition, if these contributions were made to a donor-advised fund account, the couple could recommend grants to charity in each tax year.
This hypothetical example is only for illustrative purposes. Schwab Charitable does not provide tax advice, so clients should consult their legal or tax advisors about their particular situation.
Would bunching be effective for your clients?
Our Bunching and Tax Savings Calculator can help your clients determine if bunching contributions might provide them with more tax deductions. They simply select their 2023 filing status and estimated annual income/tax bracket and enter their estimated deductions. We’ll then calculate whether bunching contributions may increase their tax savings.
*Overall deductions for donations to donor-advised funds and other public charities are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. The IRS permits a carryover for five tax years, should a charitable deduction exceed AGI limits in a given tax year.
A donor's ability to claim itemized deductions is subject to a variety of limitations depending on the donor's specific tax situation. Consult a tax advisor for more information.
Schwab Charitable Fund™ is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund™ are considered an irrevocable gift and are not refundable. Please be aware that Schwab Charitable has exclusive legal control over the assets donors have contributed. Although every effort has been made to ensure that the information provided is correct, Schwab Charitable cannot guarantee its accuracy. This information is not provided to the IRS.
Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.
Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization, which has entered into service agreements with certain subsidiaries of The Charles Schwab Corporation.
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