Marco and Sara, a married couple, typically donate about $10,000 to charity each year.
When they filed their 2019 income tax return — after the Tax Cuts and Jobs Act (TCJA) went into effect — they were distressed to learn that, even though the TCJA didn't reduce or eliminate the charitable deduction, the couple's $10,000 in donations that year wouldn't provide them any tax savings. Why? With the standard deduction essentially doubled, plus the reduction or elimination of other itemized deductions, Marco and Sara were better off taking the standard deduction.
For 2020, they had $12,000 in itemized deductions not including the charitable deduction. So because their itemized deductions, even with $10,000 in donations, would be less than the $24,800 2020 standard deduction for married couples filing jointly, they'd save more tax claiming the standard deduction — and they’d get no tax benefit from $10,000 of donations.
The couple wanted to continue to give generously, but they weren't sure they could afford to continue to do so without a deduction. So they consulted a tax advisor. She suggested a strategy that would allow them to still get some tax benefit from their charitable contributions: “Bunch” them into alternating years. Instead of donating $10,000 to charity each year, they could donate $20,000 every other year.
So, instead of making $10,000 of charitable gifts in December of 2020 as they normally would have done, they waited until January of 2021 to donate the $10,000 and then made another $10,000 of donations in December of 2021.
They claimed the 2020 $24,800 standard deduction on their 2020 income tax return but itemized when they filed their 2021 tax return and deducted $32,000 (their $20,000 of donations plus their $12,000 of other itemized deductions for 2021).
Marco and Sara didn’t make any large donations in 2022, because they wanted to claim the $25,900 standard deduction for 2022 and bunch their charitable donations into 2023. (But under a COVID-19 relief law, they were able to make $600 of cash donations in 2021 and deduct that amount while still claiming the standard deduction.)
And for 2023 they’re making $20,000 of donations – $10,000 in January and another $10,000 in December – and will itemize deductions when they file their 2023 return in 2024.