Making larger charitable gifts every other year could be an excellent tax-saving strategy.
LEARN HOW YOUR PLANNED GIFT CAN HELP THE AMERICAN LEGION
On Nov. 5, the IRS published its tax tables, exemptions and deduction limits for 2027. Based on the inflation rate for the mid-2025 to mid-2026 base period, there are substantial increases in many tax provisions.
The 2027 standard deduction will be $33,200 for couples filing jointly and $16,600 for single persons; the head-of-household standard deduction increases to $24,925. All three were nearly doubled for 2018 and later years by the Tax Cuts and Jobs Act (TCJA) of 2017.
Each taxpayer must calculate both regular and alternative minimum tax (AMT) amounts; the tax payable is the higher of the two numbers. The 2027 AMT exemptions are $144,700 for married couples and $93,000 for single individuals. The AMT exemption is phased out for married couples with income from $1,031,900 to $1,321,300 or for single individuals with income from $515,950 to $701,950. The AMT tax is 26% at the lower level and 28% over $252,500.
Cafeteria plans are available for medical reimbursement of qualified expenses. The flexible spending account (FSA) plan limit for 2027 is $3,500.
Charities are permitted to transfer token gift premiums to donors who make gifts above a specific level. In 2027, a donor who makes a gift over $71.65 may receive a premium with the logo or other identification of the nonprofit and a value of $14.33 or less. Donors who make larger gifts may receive a premium up to 2% of the value of the gift, with a limit of $143.30.
The estate-tax basic exclusion amount increases from $15 million to $15.480 million. A couple in 2026 may have an estate of $30.96 million with no transfer tax.
Special-use agricultural land under Sec. 2032A may qualify for $1.5 million of reduced value. If an estate qualifies for installment payment of the estate tax under Sec. 6166, the 2% interest amount is levied on $2.01 million.
Finally, the annual gift exclusion will be $20,000. This is a per donor-per donee exclusion. An individual or couple with a large family may make substantial tax-free transfers each year through use of annual gift exclusions.
Benefits of Bunching Charitable Gifts in 2026 With the doubling of the standard deduction made permanent by the One Big Beautiful Bill Act, the number of taxpayers who itemize will continue to be limited. In 2017 nearly 30% of taxpayers did, but with the larger standard deductions, approximately 10% will this year.
The standard deduction doubled in 2018 to $24,000 for married couples and $12,000 for individuals. The married standard deductions increased to $32,200 in 2026 and $33,200 in 2027. Individual standard deductions are one-half the married number. Seniors 65 and older receive the added senior deduction of $2,050 single and $1,650 per qualifying married spouse.
For tax years 2026 to 2028, seniors receive an enhanced deduction of $6,000. This phases out at a rate of 6% of the excess amount for single persons with incomes over $75,000 and married couples with incomes over $150,000. The deduction is fully phased out for single persons with incomes over $175,000 and married couples with incomes over $250,000. A single senior with $60,000 of income would have a standard deduction of $16,100, the existing $2,050 senior deduction and an additional $6,000, for a total itemized deduction of $24,150.
What tax planning strategy might benefit generous taxpayers who know there is a large standard deduction and still desire to help a favorite charity? Let’s consider the options for two generous families with $150,000 of joint income: John and Mary, and Harry and Susan*.
There is a new benefit this year. In 2026, a couple may give cash up to $2,000 and deduct it above the line or before taking other deductions. For charitable gifts, they can also deduct on their itemized charitable gifts over $750 (1/2 of 1% of their income is not deductible). They give $15,000 to favorite charities this year. With $2,000 deducted first and the $750 floor on itemized charitable gifts, their itemized charitable deduction will be $12,250. Both couples pay $9,000 in state and local taxes, and $7,000 in home mortgage interest.
John and Mary have total itemized deductions of $28,250 this year. Because the standard deduction is larger than that, they plan to take the $32,200 standard deduction in 2026 and $33,200 amount in 2027. Their total deductions over two years are $66,400.
Harry and Susan decide to “bunch” their charitable deductions – they give $30,000 in 2026 and nothing in 2027. Because their 2026 itemized deductions of $43,250 are more than the standard deduction, they elect to itemize. In 2027, they take the standard deduction of $33,200. Their total deductions are $76,450. By “bunching” their deductions, Harry and Susan increase their tax savings from their charitable gifts. The $10,050 increased charitable deduction may save $2,110 in their 21% federal and state income tax brackets.
If the combined state and local tax, home mortgage interest and charitable gift deductions are close to the married or individual standard deductions, it may be beneficial to visit with a tax adviser about “bunching” your charitable gifts. Making larger gifts every other year could be an excellent tax-saving strategy.
*Please note: Names and images are representative of a typical donor and may or may not be actual donors to the organization.
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