Would `Bunching' Your Tax Deductions Work for You?

Article excerpt

As the standard deduction creeps up and mortgage interest payments creep down, something surprising is happening to many tax returns: People who always thought they would be itemizing deductions are finding themselves in a position where it doesn't pay for them to do so.

They're taking the standard deduction, but they are still regretting the deductions they can't take.

Now, tax advisers are recommending a new solution that can keep people from losing deductions. "Bunch" deductions together every other year, they suggest. Itemize in those years when the deductions are heaviest, and take the standard deduction in between.

Marvin Weisbrod, vice president of technical services for Triple Check Income Tax Services, suggests using this every-other-year approach to maximizing your writeoffs.

This plan goes a step further than first-generation "bunching" techniques that tax experts started talking about a few years ago when Congress put floors on miscellaneous deductions and raised the floor under medical deductions.

Under current tax laws, miscellaneous deductions are only deductible to the extent that they exceed 2 percent of adjusted gross income. Medical expenses are deductible to the extent they exceed 7.5 percent of your adjusted gross income.

So the pros have been telling us to "bunch" these deductions. Pay insurance premiums so that they fall more heavily in alternative years. Use those years to replace your contact lenses, catch up on all of your routine checkups, and time, to the extent possible, your voluntary medical expenses to fall more heavily in these alternate years.

H & R Block's Income Tax Guide, for example, lists more than 100 deductible medical expenses you might not have thought were legitimate, like special mattresses, lead paint removal, chiropractic fees and birth control bills.

Miscellaneous deductions are similarly "bunchable." Every other year, go down the list of possibilities, from safe deposit fees to professional magazine subscriptions to tax preparation charges. In many cases, the person you are sending these fees to may be bunching his or her own return and would be happy to coordinate alternative years with you.

But these special-situation deductions are limited in scope and not the most productive places to bunch. For that, determine if you are a borderline standard-deduction user.

If you are, bunch as many deductions as possible in the alternative years when you don't take the standard deduction. …