Quick overview
Bunching strategies cluster otherwise-annual deductible expenses into one tax year so your Schedule A itemized deductions exceed the standard deduction and lower your taxable income for that year. Typical tactics include prepaying state taxes (where allowed), consolidating charitable gifts into a donor-advised fund (DAF), and timing elective medical procedures or large medical bills in the same calendar year.
In my 15 years as a financial planner, I’ve helped clients use bunching to convert years when the standard deduction would otherwise be optimal into years when itemizing is worthwhile — while leaving other years to take the standard deduction. This is a planning technique, not a way to increase deductions beyond what the tax code allows.
(See IRS guidance on charitable contributions and medical deductions for rules and limits: IRS Publication 526 and Publication 502.)
Why bunching can matter now
The Tax Cuts and Jobs Act raised the standard deduction and limited or changed several itemized deductions, meaning fewer taxpayers benefit from itemizing year to year. Bunching gives taxpayers with variable or lumpy deductible expenses a way to capture deductions in high‑benefit years without permanently changing financial behavior.
Important things to bear in mind:
- The standard deduction is indexed annually—use the current IRS figure when you run the numbers (IRS: Standard Deduction).
- Some limits still apply (for example, state and local tax deductions are limited for most taxpayers), and deductions like medical expenses must exceed a percentage of your adjusted gross income (AGI) before they’re deductible (see IRS Publication 502).
- Charitable deductions have documentation and percentage limits; donor‑advised funds are a common bunching tool but have their own rules.
How bunching works: a step-by-step framework
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Inventory deductible items you control or time: charitable gifts, elective medical procedures, un-reimbursed medical expenses, timing of state estimated tax or property tax payments, and mortgage interest (to the extent you can schedule closings or payments).
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Project two to three years of taxable income and likely deductions. Bunching is a multi-year decision: you’re deliberately shifting deductions from one year to another.
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Compare outcomes: run a side‑by‑side comparison of “take the standard deduction each year” vs. “itemize every other year by bunching.” Use tax software or a CPA and include state tax rules.
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Consider neutralizing effects: use a donor‑advised fund to make one large deductible contribution while keeping the cash available to support charities later. If you’re near required minimum distribution (RMD) age or can use a qualified charitable distribution (QCD) from an IRA, evaluate those options with your advisor.
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Keep records: maintain receipts, acknowledgements for charitable gifts, medical billing statements, and canceled checks. Documentation is crucial if the IRS asks.
Simple example (hypothetical numbers)
Below is an illustrative calculation. These numbers are examples only—always use current tax-year standard deduction amounts and brackets when you calculate.
- Assumed standard deduction in this example: $X (use the IRS site for the current year).
- Year A (bunching year): Charitable gifts $18,000; Medical expenses above threshold $4,000; State tax prepayment $5,000. Total itemized = $27,000 → Itemize.
- Year B (non-bunching year): Charitable gifts $0; Medical expenses $1,200; State taxes $0. Total itemized = $1,200 → Take standard deduction.
If the standard deduction is $18,000 (hypothetical), the family itemizes in Year A and takes the standard deduction in Year B. Over two years, total deductions = $27,000 + $18,000 = $45,000 vs. $18,000 + $18,000 = $36,000 if they had taken the standard deduction both years. Bunching produced an extra $9,000 of deductions across two years in this illustration.
Note: the timing of prepaying state taxes can be affected by state law and the federal SALT cap; check whether prepaying creates tax benefits or just accelerates a deduction.
Common bunching vehicles and rules
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Donor‑Advised Funds (DAFs): Make a single, lump‑sum gift to a DAF to get an immediate federal income tax deduction. You can recommend grants to charities over future years. DAFs are very effective for bunching charitable donations but consider investment fees and distribution timing.
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Prepaying itemizable expenses: Where state law allows, prepay property taxes or state estimated taxes to shift deductions into a year when you’ll itemize.
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Medical expenses: Medical deductions are allowed only to the extent they exceed a threshold percentage of AGI (check the current percentage on the IRS site; many taxpayers face a 7.5% AGI threshold for deductible medical expenses). Bunching elective procedures or timing payments in one year can help clear that floor.
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Qualified Charitable Distributions (QCDs): For IRA owners who qualify, QCDs let you donate directly from an IRA to charity and exclude the distribution from income; QCDs can be timed to meet giving goals and RMD requirements. Rules and age thresholds can change—verify current IRS guidance.
State interactions and the SALT cap
State tax treatment matters. Some states conform to federal treatment and some do not; a strategy that works federally may have different state consequences. Also, the federal deduction for state and local taxes (SALT) is capped for most taxpayers (see IRS guidance on SALT limits). Include state tax effects in every bunching model.
For state-specific guidance, see our article on how state conformity decisions affect itemized deductions: How State Conformity Decisions Affect Itemized Deductions.
Practical tests you should run
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Two‑year (or three‑year) math: Simulate two scenarios—(A) take the standard deduction every year, and (B) bunch in Year 1 and take the standard deduction in Year 2. Compare total after‑tax cash flows.
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Sensitivity to AGI: Medical deductions and some charitable percentage limits are AGI dependent. Run the model at different AGI levels if income is volatile.
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AMT check: If you’re near the alternative minimum tax, bunching certain deductions may not produce the expected federal benefit. Run an AMT test.
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State test: Run state returns both ways. In some states, prepaying deductions may change state tax liability in unintended ways.
If you’d like a practical checklist, our glossary entry on itemized deductions helps list what can go on Schedule A: What Are Itemized Deductions?.
Documentation and audit considerations
Recordkeeping is essential. For charitable donations, get written acknowledgements for gifts $250 and over and keep bank records for smaller gifts. For medical expenses, keep invoices and proof of payment. For tax software and CPAs, maintain a folder (digital or paper) with Date, Payee, Amount, Purpose, and Supporting Document for each deduction you claim (see IRS Publication 529 for general recordkeeping and relevant Publications 502 and 526 for specifics).
Mistakes to avoid
- Relying on outdated standard deduction numbers. Always use current IRS figures when you model.
- Bunching solely to claim a deduction without regard for cash flow or family charitable policy.
- Ignoring state rules and SALT limits.
- Failing to document properly: lack of receipts is a frequent reason an otherwise valid deduction is disallowed.
When to involve a professional
If your situation includes large medical bills, complex charitable assets (appreciated securities, private stock, real estate), or potential AMT exposure, consult a CPA or tax attorney. In my practice, I usually run at least a three‑year projection and an AMT check before recommending a bunching plan. A financial planner can help align bunching with cash flow and giving goals.
Additional resources
- IRS — Standard Deduction: https://www.irs.gov/credits-deductions/standard-deduction
- IRS Publication 502 — Medical and Dental Expenses: https://www.irs.gov/publications/p502
- IRS Publication 526 — Charitable Contributions: https://www.irs.gov/publications/p526
- FinHelp: Timing Charitable Gifts for Maximum Tax and Social Impact
- FinHelp: What Are Itemized Deductions?
Professional Disclaimer: This article is educational and does not constitute tax or legal advice. Tax rules change; check current IRS guidance or consult a qualified tax professional for advice tailored to your situation.
