Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Anyone Bunching Tax Deductions?
Old 02-05-2013, 10:22 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 2,453
Anyone Bunching Tax Deductions?

We have had some posts which describe this tactic. This refers to taxpayers adjusting the timing of certain tax-deductibe expenses so more of them fall into a single calendar year, raising that taxpayer's itemized deduction while being able to claim the standard deduction in the adjacent year.

For some of you, this means delaying the paying one's year-end property taxes from December to January then paying the following year's property taxes in December, effectively paying two years of property taxes within a single calendar year while being able to "bump up" to the standard deduction in the off-year. For others, it means timing one's charitable deductions so more of them fall into a single calendar year.

In my own case, I paid my 4th quarter 2012 estimated state income taxes in January, 2013 (last month) while planning to pay my 4th quarter 2013 estimated state income taxes in December, 2013. I also delayed one small payment to a charity from November, 2012, to January, 2013.

I estimate the tax savings from this bunching will be about $450 over a 2-year period.

Any of you planning to do this or are doing it already?
__________________

__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-05-2013, 10:44 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 9,004
Yes, we took the standard deduction in 2011, and bunched our itemized deductions into 2012. I paid the property taxes for 2013 early and we sent three years worth of charitable giving (appreciated MF shares--another good deal) to our charitable foundation account (we'll further distribute it over time, but we get the deduction in 2012).

Bunching will save us quite a bit in taxes, for other folks (with itemized deductions well below or well above the standard deduction) it wouldn't be as useful. If we did nothing special our itemized deductions would be almost exactly the same as the standard deduction.

One side benefit: It simplifies things. In our "standard deduction" years I don't waste time looking for every deduction and logging everything.
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 02-06-2013, 04:21 AM   #3
Recycles dryer sheets
 
Join Date: Jun 2010
Location: Southwest Florida
Posts: 137
I do this also with medical expenses to get over the 7.5% threshold by paying two years' Medigap premium and Rx premiums in one year.
Bruce
__________________
MBMiner is offline   Reply With Quote
Old 02-06-2013, 06:47 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 6,398
We bunch, but sometimes I think it can backfire.

Our deductions are just charitable contributions, property taxes, and maybe sales taxes if the law allows.

We do the Jan/Dec prop tax thing that scrabbler1 mentioned and for charitable contributions we donate directly and to a donor-advised fund. The DAF allows us to move the tax deduction into a specific year while then making donations from the DAF in years when we will be itemizing. That way, we can have a pretty steady stream of giving to specific charities.

But suppose 2013 is a standard deduction non-itemize year. That means that we have paid our 2013 prop taxes in December 2012 and contributed to the DAF also in December (since 2012 was an itemize year). As the year 2013 goes on, maybe we have more income than we expected. This hurts because we have only planned for the ~$12,000 for the standard deduction.

Conversely, if one can control income a little bit, then one can reduce income in the standard deduction years and increase income in the itemize years.
__________________
LOL! is offline   Reply With Quote
Old 02-06-2013, 07:20 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 2,453
One thing which will hurt my chance of bunching a little more is the increase in 2013 of the 7.5% (of AGI) medical expense to 10%, at least for those of us under 65. For 2013 I will be between those 2 cutoffs so this change (and one which further increases the unequal tax treatment of health insurance premiums, but that's for another thread) will cost me a bit.

But another thing which will help as a result of bunching is the fact that I receive a property tax rebate every year (actually, in the year after I pay the property taxes) and will not have to include it as income in the year after the year I take the standard deduction (because I did not itemize). I did include this in my overall tax savings from bunching.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 02-06-2013, 08:01 AM   #6
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 447
I've been bunching two years of property taxes into a single calendar year for a long time now. I've toyed with the idea of using a donor advised fund for the same purpose, but haven't carried through with it yet. I may look into it again this year, since 2013 will be an itemized deduction year for us.
__________________
karluk is offline   Reply With Quote
Old 02-06-2013, 08:18 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 8,993
Yes... I bunch....
__________________

__________________
Texas Proud is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 08:25 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Early Retirement News right to your Email!

Stay up-to-date with all the latest news to your inbox!

unsusbcribe at anytime with one click

Close [X]