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Itemized,
Bunching, Accelerating Deductions
Itemized 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.
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.
Fewer taxpayers benefit from
itemizing deductions then standard
deductions.
Search for IRS topics
listed below at http://www.irs.gov/taxtopics/
| Should I Itemize? |
Topic 501 |
| Medical and Dental Expenses |
Topic 502 |
| Deductible Taxes |
Topic 503 |
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Home Mortgage Points
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Topic 504 |
| Interest Expense |
Topic 505 |
| Contributions |
Topic 506 |
| Casualty and Theft Losses |
Topic 507 |
| Miscellaneous Expenses |
Topic 508 |
| Business Use of Home |
Topic 509 |
| Business Use of Car |
Topic 510 |
| Business Travel Expenses |
Topic 511 |
| Business Entertainment Expenses |
Topic 512 |
| Educational Expenses |
Topic 513 |
| Employee Business Expenses |
Topic 514 |
| Casualty, Disaster, and Theft
Losses |
Topic 515 |
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.
See More on
Standard Deductions Here
Bunching 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.
Skimping on deductions
In alternating years, holding them below the
standard deduction amount allows you to 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 a method of trimming taxable
income from your tax bill for the current
year. Some examples:
- consider paying your full year's
real estate tax in December.
- 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 by purchasing
prescriptions or getting a physical now.
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