Anyone Bunching Tax Deductions?

[scrabbler1]

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?

 

[samclem]

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.

 

[Gill]

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

 

[LOL!]

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.

 

[scrabbler1]

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.

 

[karluk]

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.

 

[Texas Proud]

Yes... I bunch....