How Can I Save On Taxes Without Itemized Deductions?
I’m David Witter, founder and CEO of Financial Harvest Wealth Advisors in Winter Park, Florida. A common tax question we get is, “How can I save on taxes if I’m no longer able to do itemized deductions?”
Four Bunching Strategies
We call this bunching, and within bunching, there’s four individual strategies, and you could use a combination of all four.
If you think about your itemized deductions, like take property tax as an example, well, if you just keep paying your property tax in November, that’s not bunching. What you could do is say, “Hey, in 2020, let’s say I’m going to try and do standard, but then in 2021, I’m going to set up, do an itemized.”
Maybe you could pay your property tax in January of 2021 and also pay the November 2021 property tax, bringing two of them together in the same tax year, which would boost your itemized deductions.
Pre-Pay Mortgage Interest
Secondly, we do mortgage interest. Going back to that same example of 2021 is where we’re trying to get those itemized deductions up. Maybe you pay 13 or 14 mortgage payments in 2021 by prepaying, and you’re actually prepaying interest, which would also boost your itemized deductions.
Deduct Planned Medical Expenses
The third is medical. Now, if you’re able to get above the threshold of 10% of your adjusted gross income, then you could be able to deduct your medical expenses, and you may choose to have certain surgeries or an MRI or something along those lines in a year that you’re looking to do itemized deductions.
Charitable Impact Donations
Last but not least, it’s probably my favorite, is charitable impact. If you are already in a practice of giving charitably, maybe you be a little bit lean and Scrooge in 2020, and you can be more generous in 2021.
Establish a Donor-Advised Fund
Another way we can do it is by using something called a donor-advised fund. Let me explain that.
If in 2021, you’re doing your regular giving, but you want to pre-give or get your tax deduction in 2021 for your giving you’re going to do in 2022, we could establish a donor-advised fund, which would capture the charitable deduction in 2021, and then out of that donor-advised fund, you can do your giving as normal in 2022.
So it’s a way of pulling or accelerating the tax deduction into the year that’s strategic for you when you’re going to do your itemized deductions.
Those are four strategies that we commonly work with our clients to help them save taxes by bunching when they’re no longer maybe meeting that threshold to be able to do itemized deductions.
David Witter is founder and CEO of Financial Harvest Wealth Advisors located in Winter Park, Florida.