Year End Tax Tips: Part 2 – Bunching Your Itemized Deductions

If you itemize, you might find it difficult to exceed the the adjusted gross income percentage thresholds. Generally, this is 10 percent for medical expenses or 2 percent for miscellaneous itemized deductions and job-related expenses.

In these cases, implement a grouping strategy before the end of the year can provide insight on whether you will need to make medical appointments or purchase large deductible items before the end of the year. 

Not having enough expenses to itemize typically shows up for deduction categories that require you to exceed a percentage of your adjusted gross income. 

If, for example, your AGI is $60,000 and your medical write-offs do not exceed $6,000 then the IRS will not allow any deduction.  Your medical expenses must be over $6,000. So, if you have $7,500 of medical expenses, you can only deduct $1,500 on your Schedule A.  

However, if you are over 65 years old, you are only subject to the 7.5 percent limitation for medical expenses.

So it’s important to know how much you have spent in medical expenses before you decide if you want to incur additional expenses to try to exceed the limitation.

Miscellaneous expenses subject to the 2 percent limitation are easier to manage.  Most deductible items, such as job-related expenses, can be shifted into 2015 if think you will not have enough to exceed the 2 percent limitation in 2014. 

Travel to a conference or subscriptions to professional journals are flexible expenses that can occur in whichever year will produce the better tax savings.. 

Although you may not be able to take medical or miscellaneous deductions every year, you are essentially time shifting write-offs from one year to another.

The key is to understand the deduction limits and set up a system to exceed and claim them.

If you have questions regarding itemized deduction limitation and wish to discuss this or other strategies, please contact Gallati Professional Services!

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