"Gary Bode has just completed our tax returns for the first time and I am totally satisfied with his level of service. He has been very attentive, asked all the right questions, and not only fixed some problems from our previous accountant, but also set us up for future success through a thorough and professional analysis of our corporate structure in conjunction with several personal variables.Ask your CPA accountant about other personal tax strategies. They add up. (910) 399-2705.
CPA accountants field lots of calls about itemized deductions on Schedule A. Our firm always fills out Schedule A to itemize when preparing Form 1040, even when it’s clear the client won’t exceed the standard deduction. Why? If the client doesn’t benefit from itemized deductions every year, we look to see if they can exceed the standard deduction every other year. I call this technique Schedule A bunching. I helped developed it when I was tax editor for an online annual CFP publication. Check it out.
What are Itemized Deductions on Schedule A?
Schedule A is a mixed bag of preferential deductions for Form 1040. It’s a typical IRS form with multiple sections. Each section has limitations, special rules, and loopholes. If your total itemized deductions exceed the standard deduction, you use the higher figure on page 2 of Form 1040. Here’s an earlier post on Schedule A and itemized deductions.
“If you can’t use Schedule A itemized deductions every year, maybe you can use it every other year through this tax strategy.”
- Gary Bode, CPA accountant
Using Itemized Deductions on Schedule A and Form 1040 every other year:
Let’s look at just three sections of Schedule A -
- Medical expenses.
- Tax you paid.
- Gifts to charity.
Assume your itemized deductions generally run about $5000 a year, so you use the higher standard deduction of $5,400.
The bunching strategy for itemized deductions on Schedule A
Try to bunch medical expenses into every other year.
- Medical Expenses:
- If you buy glasses every year, consider buying them on January 1st and December 31st of the current tax year.
- Try to schedule elective medical expenses every other year.
- Real estate taxes are general due in early January of the following year.
- Consider paying them on January 1st and December 31st.
- Bunch your charitable deductions into every other year.
Simple example
- In the year you don’t bunch, your itemized deductions drop to $3,000. No worries, you still get the $5400 standard deduction on Form 1040.
- In every other year you bunch, and itemized deductions are now $7,000 (average of $5,000 + $2,000 bunched expenses).
- Now your itemized deductions on Schedule A exceed the standard deduction by $1,600 ($7000 - $5400).
- Let’s say your aggregate marginal tax rate is 25%.
- So you save $400 in taxes every other year.
CPA accountants use a variety of tax strategies to optimize your tax burden. This post is just one example.
If you don’t have a CPA accountant consider calling us at (910) 399-2705. We’re nationwide through our virtual office.
Find me on Google+
Like me on Facebook
Follow me on Twitter
