NOTE: This tax tip was updated July 4, 2017.
I know. You're tired of taxes. Tax Day was yesterday and you don't want to think about the topic again for at least a few days weeks months.
But since you did just complete your annual tax task, now is the perfect time to look at what worked and what didn't turn out so well when it came to filing your return.
A perennial complaint is that all the effort you put into collecting receipts was for naught. When you added up all your expenses, they came in just short of the amount needed to claim them on Schedule A.
Bunching, fellas, not Bundchen, as in supermodel Gisele Bundchen, shown there at left, although we are going to examine ways to make your deductions a model of tax-filing effectiveness.
First, the tax (not modeling) problem.
Thresholds to meet: 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 $50,000 and your medical write-offs don't exceed $3,750 $5,000 then the IRS doesn't want to hear about them.
Note the word "exceed." Just hit $3,750 $5,000 and you still get no itemized break. Have $3,755 $5,005 in medical costs, and you only get to deduct $5.
Note, too, that under the recently enacted health care reform law, this percentage threshold will go to 10 percent for most filers in 2013.
So it's important to have a strategy in place so you won't waste such expenditures.
While health-related costs often are out of your control -- who knew Jimmy would take such a painful tumble on his bicycle? -- sometimes you do get to time them, like when you decide to finally let your orthopedic surgeon 'scope your creaky middle-aged knee.
Miscellaneous expenses are even more controllable.
Subscriptions to professional journals you use in connection with your job, for example, can be renewed at your tax convenience.
Tax year trade-off: Bunching can help you achieve a larger itemized deduction, but it isn't perfect.
Because you're essentially time shifting write-offs from one year to another, that means you might be able to itemize only every other tax year.
But hey! That's better than not being able to make tax use of that pile of receipts at all every filing season.
Again, the key is to understand the deduction limits and set up a system to exceed -- and claim -- them.
Tax tips to continue: I also examine bunching in today's special bonus Daily Tax Tip from Bankrate, Bunching itemized deductions.
The tip is posted up there in upper right of the page. It's the last daily tip of the 2009 filing season.
Aww, thanks for being sad about the end of the daily tips. But I have good news!
I've decided to keep the feature going in a revised format.
Starting next week and running through Dec. 31, I'll post a Weekly Tax Tip.
There are still lots of tax topics to think about in the off season, so I'll include them there, as well as in the continuing monthly tax calendar listing in the far left column.
These features should help you (and me!) keep track of ways to make our 2010 tax filing easier and less costly.
- Bunching medical expenses
- Tax breaks without itemizing
- 7 new tax laws that could save you money
- Don't overlook these tax breaks
- Some credit card fees are now deductible
- Don't spend money to save tax dollars
- Don't forget your Daily Tax Tip!
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