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Scott Thomas, ChFC®, CAP®, CKA®, RICP®

Save Money in Taxes by Bunching Your Deductions

Are your deductions falling just under the standard deducation amount? If so, you're not alone. And thankfully, there's a simple way to approach your deductions that can save you money in the long run!

In 2017, tax laws changed, which included doubling the standard deduction amount. Facts indicate that fewer taxpayers will itemize their taxes because of this change. While around 33% itemized in 2017, starting in 2018, the number lowered nearly by half.

Unfortunately, many taxpayers will fall a little under the Standard Deduction (SD) from their itemized deductions. The SD consists of mortgage interest plus real estate and state taxes (limited to $10K) plus charitable gifts. So the SD as a single person is $12,000 and, for married couples, it’s $24,000.

If you’re 65 or older, you get an extra deduction added on as a single. That extra deduction is currently $1,300 for singles and $2,500 for married couples.

How to Save Money by Bunching Your Deductions

This is where “bunching” or “loading the box” comes in. This is where a taxpayer pushes together deductions from multiple years into one year.

Here’s an example of how this works: Let’s say a married couple has an income of $150,000 with $7,000 in interest expenses, $5,000 in real estate taxes, and $10,000 in charitable donations. The total itemized deduction is $22,000. But if they change up the timing of real estate tax payments to every other year, they double down the $10,000 in real estate taxes and keep the same $7,000 in interest. They then double down charity or utilize a donor-advised fund of $20,000. This comes to a total every other year of $37,000.

It’s the same money. But by timing it differently, the couple gets an extra $13,000 deduction every other year. This translates to $2,860 in tax savings every other year or, over a 10-year period, $14,300 of reduced tax payments.

No products to buy. No locking up your money in annuities. No legal work or complex planning required here. This is clearly the best strategy to take for tax deductions.

You should still seek advice from a professional on the best way to do this legally and safely, though. I’d be happy to chat with you about this topic if you have questions. Just email me at scott@stewardshipmatters.net.

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Check the background of this financial professional on FINRA's BrokerCheck