In our prior posts, we have discussed the finer points of what goes into determining what your taxable income is. Essentially, it is your total gross income minus allowable exemptions and deductions. Indeed, many people rely on deductions to lower their income (and in turn, their tax burden), but while they may feel as if they have a number of deductions, they may not make a significant difference on their own.
In these situations, a taxpayer may se a benefit from bunching deductible costs. This post will briefly highlight how this could work.
First and foremost, taxpayers should keep in mind that the IRS only allows deductions for some costs only after they exceed a certain threshold. For example, medical expenses only become deductible after they exceed ten percent of your adjusted gross income. However, if these expenses can be merged with (or bunched) with miscellaneous deductions, this could result in some savings through your Schedule A.
Using the medical expenses example again, you can also deduct expenses you incurred in the course of looking for a job, any professional license expenses or dues that you must pay as part of doing business, as well as costs related to a hobby that nets some income.
While bunching expenses may be a worthwhile strategy, it may not be done every year. The IRS only allows this strategy to be used every other year. If you have questions about how bunching may work for you, or if the IRS notifies you that improper deductions have been used, an experienced tax attorney can advise you.