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Consider Bunching Itemized Deductions

You can deduct the greater of your itemized deductions (mortgage interest, charitable contributions, medical expenses, and taxes) or the standard deduction. The 2023 standard deduction is $13,850 for singles and individuals who are Married Filing Separately (MFS), $27,700 for couples Married Filing Jointly (MFJ), and $20,800 for Heads of Household (HOH). If your total itemizable deductions for 2023 will be close to your standard deduction, consider timing your itemized deduction items between now and year-end. The idea is to “bunch” your itemized deductions, so they exceed your standard deduction every other year. Paying enough itemizable deductions in 2023 to exceed your standard will lower this year’s tax bill. Next year, you can always claim the standard deduction, which will be increased to account for inflation.


For example, assume your filing status is MFJ and your itemized deductions are fairly steady at around $25,000 per year. In that case, you would end up claiming the standard deduction each year. But, if you can bunch expenditures so that you have itemized deductions of $30,000 in 2023 and $20,000 in 2024, you could itemize in 2023 and get a $30,000 deduction versus a $27,700 standard deduction. In 2024, your itemized deductions would be below the standard deduction (which adjusted for inflation will be at least $27,700), so for that year, you would claim the standard deduction. If you manage to exceed the standard deduction every other year, you’ll be better off than if you just settle for the standard deduction each year.

If you have a home mortgage, you can bunch itemized deductions into 2023 by making your house payment due on January 1, 2024, in 2023. Accelerating that payment into this year will give you 13 months’ worth of interest in 2023. There are limits on the amount of home mortgage interest you can deduct. Generally, in 2023, you can deduct interest expense on up to $375,000 [$750,000 if married filing jointly (MFJ)] of a mortgage loan used to acquire your home. More generous rules apply to mortgages (and home equity debt) incurred before December 15, 2017. Check with us if you are not sure how much home mortgage interest you can deduct.


Timing your charitable contributions is another simple way to get your itemized deductions into the year you want them. To a certain extent, you can also choose the year you pay state and local income and property taxes. Taxes that are due in early 2024 (such as fourth quarter state estimated tax payments in many states) can be paid in 2023. Likewise, property tax bills are often sent out before year-end, but not due until the following year. Prepaying those taxes before year-end so that your itemized deductions exceed your standard deduction can decrease your 2023 federal income tax bill because your total itemized deductions will be that much higher. However, note that the deduction for state and local taxes is limited to $10,000 ($5,000 if you are married filing separately). So, if your state and local tax bill is close to or over that limit, prepaying taxes may not affect your total itemized deductions.

Warning: Prepaying state and local taxes can be a bad idea if you owe Alternative Minimum Tax (AMT) for 2023, since those taxes aren’t deductible under the AMT rules. If you are subject to AMT in 2023 and think you won’t be in 2024, it’s better to pay the taxes in 2024, when you have a chance of deducting them. Contact us if you are unsure about your exposure to the AMT.


Finally, consider accelerating elective medical procedures, dental work, and vision care in 2023. For 2023, medical expenses can be claimed as an itemized deduction to the extent they exceed 7.5% of your Adjusted Gross Income (AGI).


Note: If your itemized deductions exceed your standard deduction every year, the conventional wisdom of paying them before year-end, to get your deduction in 2023 rather than 2024 applies, especially if you think that interest rates will increase. The higher the interest rate, the more interest you can earn on the taxes you manage to defer.

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