2025 Tax Tip: Bunching Deductions for Middle-Class Americans

Tax Tip for 2025: Optimize Your Deductions by “Bunching” Them

Many middle-class taxpayers stick with the standard deduction each year because their individual deductible expenses don’t quite add up. However, if you time your expenses strategically, you may be able to itemize in certain years and lower your taxable income significantly. This strategy—often called “bunching” deductions—can be a hidden gem for Americans earning between $60,000 and $90,000.

What Is Bunching Deductions?

Bunching is a tax planning strategy where you concentrate your deductible expenses—such as charitable contributions and medical costs—into one tax year instead of spreading them out over multiple years. This can help you exceed the standard deduction in that year so you can itemize and lower your taxable income.

Key Tax Code References

• IRC Section 63:
  This section explains the rules regarding the standard deduction versus itemized deductions. It essentially states that you can either take the standard deduction or itemize your deductions if your total eligible expenses exceed the standard amount.

• IRC Section 170:
  Governs the deductibility of charitable contributions. It allows taxpayers to deduct donations made to qualified organizations, subject to certain limits. For example, IRC §170(a) provides that charitable contributions are deductible when made to an organization that meets IRS requirements.

• IRC Section 213:
  Relates to the deduction of medical expenses. Taxpayers may deduct qualifying medical expenses that exceed 7.5% of their adjusted gross income (AGI) in a given tax year.

How Bunching Can Benefit You

Many middle-class taxpayers (earning roughly $60,000 to $90,000 per year) find that their yearly deductible expenses fall just short of the standard deduction. By planning to “bunch” expenses in one year, you can turn two years of partially deductible expenses into one year of itemized deductions and one year of taking the standard deduction. Here’s how it works:

Example Scenario

1. Assumptions:

   • Standard Deduction: Suppose the standard deduction for a single filer in 2025 is around $14,000 (this number can vary based on filing status and IRS updates).
   • Current Yearly Expenses: Typically, you incur $10,000 in deductible expenses (charitable donations, medical costs, etc.), which is less than the standard deduction, so you take the standard deduction and forgo additional tax savings.

2. Without Bunching:

   • Year 1: $10,000 in itemized expenses < $14,000 standard deduction → Use standard deduction of $14,000
   • Year 2: $10,000 in itemized expenses < $14,000 standard deduction → Use standard deduction of $14,000
   • Average Deduction: $14,000 per year

3. With Bunching:

   • Year 1: Decide to “bunch” an extra $6,000 of deductible expenses into this year. For instance:

     • Charitable Contributions: Instead of donating $2,000 each year, donate $4,000 this year (IRC §170).
     • Medical Expenses: If you have a planned elective procedure, schedule it this year so that, combined with other costs, your out-of-pocket medical expenses exceed 7.5% of your AGI (IRC §213).

     Total itemized expenses this year might now reach $16,000, which is above the $14,000 standard deduction. You itemize and lower your taxable income.

   • Year 2: With fewer expenses, revert to taking the standard deduction of $14,000.

   • Average Deduction Over Two Years: ($16,000 + $14,000) / 2 = $15,000 per year

   This strategy effectively boosts your average annual deduction by $1,000, potentially lowering your overall tax liability.

Additional Practical Examples

• Charitable Contributions:
  If you regularly donate $2,500 a year, consider making a $5,000 donation in one year. This extra donation may push your total itemized deductions above the standard threshold. (See IRC §170 for limits and qualified organizations.)

• Medical Expenses:
  Suppose you have a chronic condition and usually incur $3,000 a year in medical costs. If you can schedule a non-urgent but necessary elective procedure in one year—raising that year’s medical expenses to $6,000—you might exceed the 7.5% AGI floor (as defined in IRC §213) and become eligible for a larger deduction.

• Combining Other Deductions:
  Look at expenses such as state and local taxes (subject to limits), unreimbursed business expenses (if applicable), or even investment expenses. When added to your charitable and medical expenses, these can collectively push you over the threshold for itemization.

Implementation Tips

• Plan Ahead:
  Review your estimated expenses at the beginning of the year. Identify areas where you have flexibility—such as scheduling elective procedures or timing charitable gifts.

• Keep Detailed Records:
  Track all deductible expenses carefully. This documentation will be vital if you itemize in one year.

• Consult a Tax Professional:
  Since tax situations vary, it’s wise to consult with a tax advisor who can help you forecast whether bunching expenses will benefit you based on your specific financial picture and any updates in tax law.

Frequently Asked Questions About Bunching Deductions.

1. What is the "bunching" deduction strategy, and how does it work?

Answer: Bunching is a tax planning strategy where taxpayers concentrate deductible expenses—such as charitable contributions and medical costs—into one year instead of spreading them over multiple years. This approach helps exceed the standard deduction in that year, allowing taxpayers to itemize and lower their taxable income.

2. Which tax code sections are relevant to the bunching deduction strategy?

Answer:

• IRC Section 63 – Defines the rules for standard and itemized deductions.
• IRC Section 170 – Governs deductions for charitable contributions to qualified organizations.
• IRC Section 213 – Covers medical expense deductions that exceed 7.5% of adjusted gross income (AGI).

3. How can charitable contributions be optimized using bunching?

Answer: Instead of donating a set amount yearly (e.g., $2,500 per year), a taxpayer could donate double ($5,000) in one year. This increases itemized deductions above the standard deduction threshold, allowing for greater tax savings that year while taking the standard deduction in other years.

4. What are some practical ways to implement the bunching strategy?

Answer:

• Schedule elective medical procedures in one year to maximize deductible expenses.
• Make larger charitable contributions in a single year instead of spreading them out.
• Track all deductible expenses and plan ahead to determine the best tax year to itemize.
• Consult a tax professional to ensure compliance and maximize savings.

5. Who benefits the most from bunching deductions?

Answer: Middle-class taxpayers earning between $60,000 and $90,000 per year who have deductible expenses close to the standard deduction threshold. By bunching expenses, they can switch between itemizing in one year and taking the standard deduction in another, increasing overall tax savings.

Final Note

Bunching deductions is a strategic way to potentially lower your tax liability by taking advantage of the differences between the standard and itemized deduction thresholds. By referring to IRC Sections 63, 170, and 213, taxpayers can better understand the legal basis for these deductions and plan accordingly.

Thank you for taking the time to read our tax tips for 2025! We hope this information helps you maximize your deductions and save on your taxes. If you found this guide useful, please support us by liking and following us on Facebook, Instagram, and TikTok—your support helps us share even more valuable insights! Also, don’t forget to check out our product collections for outstanding deals, all with free shipping. Visit our store today and grab the best offers while they last!

 

This explanation is provided for informational purposes only and should not be considered tax advice. Always consult a tax professional for guidance tailored to your individual situation.