Itemizing
Deductions
Certain kinds of deductions are called
itemized deductions. If you have enough of
them to beat the standard deduction, it's
usually a good idea to itemize. For most
taxpayers, purchasing a home makes itemizing
worthwhile. Here are some other popular
itemized deductions from the IRS
Fewer taxpayers benefit from
itemizing deductions then standard
deductions. The standard
deductions are even higher for taxpayers age
65 and older and those who are legally
blind. Itemizing generally pays off only if
your qualifying expenses total more than the
standard deduction for your filing status.
Higher standard
deductions
$5,350 for
Single and Married Filing Separately,
$7,850 for Head
of Household,
$10,800 for
Married Filing Jointly and Qualifying
Widower
The statuses
above mean that fewer taxpayers benefit from
itemizing deductions. The standard
deductions are even higher for taxpayers age
65 and older and those who are legally
blind. Itemizing generally pays off only if
your qualifying expenses total more than the
standard deduction for your filing status.
Deductions
Standard
Deductions Overlooked
Bunching
When deciding
whether or not to itemize deductions, your
year-end strategy should focus on bunching,
the practice of timing expenses to produce
lean low profit and fat high profit years. In 1 year, you would
try to amass as many deductible expenses as
possible. For example, you can time your
fourth-quarter state estimated tax payment
and certain medical procedures to ensure the
expenses are paid when they will result in
the greatest tax benefit. The goal is to
surpass the standard deduction amount and
claim a larger deduction.
In alternating years, you skimp on
deductible expenses to hold them below the
standard deduction amount because you get
credit for the full standard deduction
regardless of how much you actually spend.
In the lean year, year-end plan, stress
pushing as many deductible expenses as
possible into the following fat year when
they'll have some value.
Accelerating
Deductions
Accelerating
deductions is 1 method of trimming taxable
income and your tax bill for the current
year. Some examples:
-
If you're
allowed to pay your real estate tax in 2
installments — for example, December and
June — consider paying the full year's
tax in December.
-
You can make
your last state estimated tax payment in
December rather than the following
January.
-
If your
current-year medical expenses are close
to or exceed 7.5% of your adjusted gross
income (AGI), but are normally below the
7.5% threshold, try to move next year's
expenses to this year. For
example, purchase glasses and
prescription drugs or get your
physical before the end of December.
Some of the
expenses you can normally deduct, like taxes
and expenses subject to the 2% AGI floor, are not
deductible if you're subject to the
alternative minimum tax. Accelerating those
expenses may not result in tax savings.
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