Financial Briefs

More Articles  Printer Friendly Version

 

Time Itemized Deductions To Reduce Taxes

You can't have your cake and eat it, too, but this tax planning strategy lets you have a tax break and repeat it, too.

An old tax tactic, bunching deductions, is used in an entirely new way to minimize your tax bill under the Tax Cuts and Jobs Act (TCJA). By planning to take the new enlarged standard deduction some years and bunching deductions in other years, you may save thousands of dollars in income taxes over two or three years.

The TCJA almost doubled the standard deduction to $12,000 for singles and $24,000 for couples filing jointly in 2018. Trouble is, if you take the standard deduction, you can't itemize other deductions. You no longer can lower your taxable income by itemizing deductions such as charitable donations, medical expenses, mortgage interest, and other miscellaneous expenses.

By bunching, you do both: This year, you take the enlarged standard deduction. For 2019, you don't. Instead you bunch your deductions and itemize them when you file your taxes for 2019. If your itemized deductions aren't higher than the standard deduction, you take the standard deduction again in 2019 and then itemize in 2020 tax year.

This strategy also helps overcome another downside of the TCJA: It capped deductions on property and state taxes at $10,000 annually. These breaks used to be unlimited, and in some high-tax states exceeded the standard deduction.

By planning to bunch two or three years of charitable donations and other deductions you can control into a single year, your itemized list of deductions every other year could exceed the $24,000 ($12,000 for singles) standard deduction.

For example, a married couple itemizes and claims the maximum property and state income tax deduction of $10,000. They also pay $8,000 in mortgage interest. They'd need to make more than $6,000 of charitable donations to surpass the $24,000 standard deduction threshold. The couple usually gives $4,000 to charity yearly, so they choose to make the gift by combining two years of donations into one tax year. As a result, they can itemize deductions one year and claim $26,000 in deductions. Next year, they take the $24,000 standard deduction.

Planning to benefit by bunching deductions depends on your expected income as well as the specific deductions you can control, but with a little clever planning, you can have your tax break and repeat it, too!


Email this article to a friend


Index
The Big New Tax Break For Pre-Retired Professionals
The Truth About U.S. GDP Growth
Sidestepping New Limits On Charitable Donations
Another Member Of Music Royalty Dies With No Will
Paying Off A Mortgage And The New Tax Code
Key Facts On Deducting Medical Expenses
Reduce Your Widow's Tax Bill Materially Annually
Ten Things About 10-Year U.S. Stock Market Performance
Your Alma Mater Or Your Family?
Qualifying For The New Business Owner Tax Break
This Is Not Your Parents' Interest Rate Cycle
Life Is Fragile, So, Please, Value Each Day As Priceless
If Family Is Wealth, Then Planning Is Immortality
Everything You've Learned About Interest Rates May Be Wrong
This First Year Under The New Law Requires Planning

This article was written by a professional financial journalist for Blattel & Associates and is not intended as legal or investment advice.

©2018 Advisor Products Inc. All Rights Reserved.

The articles and opinions on this site are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your advisor with regard to your individual situation.
All summaries/prices/quotes/statistics presented here have been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Past performance is no guarantee of future results.
When you access certain links on the Blattel & Associates website you may leave this website. We do not endorse the content of such websites nor the products, services or other items offered through such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided to the users of the Blattel & Associates website for convenience and informational purposes.
Robert Blattel is a CERTIFIED FINANCIAL PLANNERTM practitioner. The partners of Blattel & Associates are not registered in all states. Please contact us to verify availability in your state. This is not an offer to buy or sell any security.
CFP® and CERTIFIED FINANCIAL PLANNERTM are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Securities and Investment Advisory Services offered through Cutter & Company Brokerage, Inc., 15415 Clayton Road, Ballwin, Missouri 63011 * (636) 537-8770. Member FINRA/SIPC.
Privacy Policy can be read at http://www.cutterco.com/privacypolicy.htm.