If you itemize your deductions and you're like me, you will spend the waning days of the year looking over expenses and seeing how much more you need to spend.
Wait, you say. You are spending more at the time of year when budgets are already stretched thanks to all the presents on your list?
Yes, I am. And it might be a good idea for you too.
That's the ninth Reindeer Year-end Tax Games Tip of 2012 from Rudolph, Santa's glowing team leader. As the one who's head of the sleigh bunch, Rudolph says bunch your expenses.
Vintage Rudolph the Red-nosed Reindeer flip book image, courtesy of Today I Found Out
A bunching strategy will help you have enough qualified expenses to meet some of the itemized deduction thresholds. If you can't cross those percentage of adjusted gross income (AGI) levels, all your receipt keeping and expense tracking is for naught.
The two key deductible areas on Schedule A are medical/dental expenses and miscellaneous expenses.
Many medical expenses: When it comes to taxes and doctors' and dentists' billables, your allowable costs on your 2012 filing must exceed 7.5 percent of your AGI. A single filer with a $40,000 AGI then needs medical costs totalling more than $3,000.
And note the "more than" requirement. If that filer has $3,100 in medical costs, she can only claim the $100 that exceeds her 7.5 percent amount.
This year also could be the best last time you can maximize your deductible medical costs. Beginning in 2013, taxpayers younger than 65 must have medical/dental costs of more than 10 percent of their AGIs before they can claim them as itemized deductions. This higher threshold is a new provision that was enacted as part of hte health care reform act.
So look at getting an extra pair of prescription glasses or contact lenses. If you're tired of the eyewear, consider Lasik surgery by Dec. 31. Get the kiddos into the dentist for the braces now. And make sure your doctor-shy spouse finally gets his or her annual checkup.
Bunching all those medical costs into 2012 could help you meet the itemized medical expense 7.5 percent deduction threshold.
More miscellaneous costs: Similarly, the miscellaneous deductions section of Schedule A also has a threshold, but it's just 2 percent of your AGI. To get over that deduction hurdle, consider renewing professional memberships early or paying for some classes that will help you do your job better.
Or if you're unhappy at your current workplace, certain costs of looking for a new job altogether can be counted here, too.
So in the last few days of the year, take some time to look at the expenses you've incurred so far and others that you might be able to pay by the 31st so that you can get the most out of your itemized deductions.
You also might find these items of interest:
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Tsk, deduction for tax. Indeed, with a lot of necessary things to be spent your money into than to taxes, how can they just overlook this case with the poor and middle class?
Joetaxpayer
Don’t forget property tax. Our tax bill runs an annual July – June, so as the year is ending, I know what I owe for the first half of the next year. And if I am in the odd year, when I’ll itemize, it may be worth paying my Q4 bill (due 11/1) in the next January, I’d have 3% late fees, but if this made it deductible, why not? This scheme might take an annual $4000 tax bill, and let you alternate between a $1000 payment in odd years and $7000 payment in even years.
A bit of effort for this and the other deductions, but one that would pay off every other year when you itemize.