As we approach the end of the 2025 tax year, we want to bring to your attention a valuable tax planning strategy known as “bunching” itemized deductions. For 2025, the standard deduction amounts have increased to $31,500 for married filing jointly, $23,625 for head of household, and $15,750 for single or married filing separately. These amounts are adjusted annually for inflation.
Recent legislation has temporarily increased the State and Local Tax (SALT) deduction limit for individuals who itemize deductions on Schedule A (Form 1040). For 2025, the maximum SALT deduction is $40,000 ($20,000 if married filing separately). This limit applies to state and local income taxes, general sales taxes (if elected instead of income taxes), real property taxes, and personal property taxes.
Please note, if your modified adjusted gross income (AGI) exceeds $500,000 ($250,000 if married filing separately), the deduction begins to phase out but cannot be reduced below $10,000 ($5,000 if married filing separately).
If your annual itemized deductions are close to the standard deduction, you may benefit by timing certain deductible expenses—such as charitable contributions, medical expenses, or state and local taxes—so that they are concentrated in one year. This can allow you to exceed the standard deduction in that year and itemize, while taking the standard deduction in alternate years. This approach may help maximize your overall tax savings over multiple years.
Careful planning is needed, especially for taxpayers who may be subject to the alternative minimum tax (AMT), as certain itemized deductions do not reduce AMT liability.
Additionally, for tax years beginning after 2025, high-income taxpayers may face a phaseout of itemized deductions. If your adjusted gross income (AGI) exceeds a certain threshold, your allowable itemized deductions may be reduced, which can limit the effectiveness of bunching deductions.
We recommend reviewing your anticipated deductible expenses for 2025 and 2026 to determine if bunching could be advantageous for you.
Beers, Hamerman, Cohen & Burger, PC would like to wish you and your family a very Happy Thanksgiving. Both offices will close early on Wednesday November 26th and resume normal business orders on Monday December 1st.