We all face one question at tax time: to itemize deductions or take the standard deduction? For 2006, the standard deduction is $10,300 for married couples and $5,150 for single filers.
If you’re on the borderline, consider a “bunching” strategy.
With this strategy, you accelerate the timing of some itemized deductions to bunch them into the current year. If they add up to more than the standard deduction, you itemize for the year.
The following year, when you’ll have fewer deductions, you take the standard deduction instead. Or if you’re expecting a big itemized deduction in the next year, reverse the strategy.
To see if this works for you, consider the following ideas:
- Increase your medical deductions by ordering a new pair of glasses. Schedule regular procedures such as an eye exam or a dental cleaning just before year-end. Remember though, you can deduct medical expenses only to the extent they exceed 7.5% of your adjusted gross income (AGI).
- Adjust the timing of any estimated payments you make for state income taxes. If feasible, consider prepaying your next property tax bill before year-end.
- If Congress reinstates the sales tax deduction, remember that a vehicle purchase may generate a big state sales tax deduction. Factor this into your planning.
- If you’re planning a contribution to your church or charity next year, write the check in December instead. Explain that it’s an early payment of next year’s contribution.
- If you claim miscellaneous work expenses, see whether you can prepay professional dues or subscriptions.
For more help with maximizing your deductions, please contact our office.
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