All of us as taxpayers continually think we have a lot of expenses that we can itemize and deduct to help reduce our respective tax bills. But they come, they go, all for naught and no effect. The problem usually arises from the fact that our costs regularly fall just short of the required income thresholds for some categories of deductions. One solution is “bunching expenses,” which is a term used to describe incurring as many expenses as possible in a particular category during a particular tax year. Of course, doing this in one tax year will usually significantly diminish any chance of repeating it the following year.
The tax code allows some deductions only after they exceed a minimum amount related to a taxpayer’s Adjusted Gross Income (AGI). For example, medical expenses are useless to most filers as deductions until they total more than 10% of AGI. Currently, but only through 2016, a 7.5% threshold is in place for taxpayers age 65 or older. It is interesting that miscellaneous deductions, such as tax preparation fees, must only surpass 2% of AGI.
Plan ahead. Keep track of costs within a category. If medical expenses start to accumulate, perhaps the threshold is approachable with some planning. If AGI is $65,000 and $6,000 of medical expenses have been incurred by October 1, then use the remaining three months to seek as much necessary medical treatment as possible to bring the amount of expenses up to 10%, which in this case would require $500 more in expenses. It shouldn’t be hard to expend this amount in three months. Now may be the time to replace those old eyeglasses or get the yearly checkup usually avoided at all costs.
For miscellaneous expenses, 2% of an AGI of $65,000 would yield an expense threshold of $1,300. This shouldn’t be hard to reach in twelve months. Miscellaneous expenses include unreimbursed employee expenses, tax preparation fees, and “other expenses.”
There are a large number of employee expenses that may add up quickly and, if unreimbursed, provide solid deductions. Unreimbursed employee expenses include but are not limited to business liability insurance premiums, depreciation of a cell phone or computer that an employer requires for work, dues to professional associations, educator expenses above any amount that may deducted as an adjustment to income, home office or that part of a home used regularly and exclusively in employment, job search expenses in a present occupation, and occupational taxes.
The negative side is that bunching expenses may be costly if the alternative minimum tax becomes an issue for the taxpayer. Also, in the following year, itemized expenses will obviously be reduced, thus bunching will probably be of little or no use in consecutive years. It may be a better strategy to utilize and claim the standard deduction in these years. Still, taking advantage of this practice every other year is better than missing out every year.
If you have questions about itemized deductions, including bunching expenses and the thresholds for any category of deductions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
