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Reduce Your Income Tax by Alternating Deductions

Published by Hamilton Software, Inc. on June 20, 2015 | Comments

If you've already paid off your mortgage, you've probably discovered that taking the standard deduction is a better deal than itemizing. It's hard to find sufficient deductions on your schedule A without mortgage interest. But there may be several hidden in plain view.

You have expenses every year that are washed out by the standard deduction, but doubling up on those expenses in alternating years can enable you to itemize every other year, thus getting a larger deduction in those years.

Property Tax:  While your county only requires you to pay yearly property tax payments, many counties allow you to prepay next year's tax this year. The IRS allows you to deduct real estate tax you paid during the tax year, regardless of which year it is for. So if you pay your property tax normally in 2018, but also prepay 2019's property tax in 2018, you will double the property tax deduction for 2018's schedule A.

State Income Tax:  Your state income tax due for the year can be deferred until January of the following year (usually with a small penalty). So if you postpone 2017's state income tax until January of 2018, but pay your 2018 tax fully by the end of the year, you will have paid two years' worth of state income tax in 2018, doubling the allowable deduction on your schedule A. Again, the IRS allows you to deduct tax you paid during the tax year, regardless of which year it was for.

Charitable Contributions:  Save all your charitable contributions and donations for alternate years as well, since these are only deductible if you itemize.

By doubling all these deductions, you may discover what you can claim by itemizing exceeds the standard deduction. In the alternate years, you won't have a property tax payment or a state income tax payment to make, so you will simply claim the standard deduction. By alternating deductions year to year (itemize, standard, itemize, standard, etc), you can reduce your income tax every other year.

Check with your tax advisor and do the math before using the strategy. Also check with your county to make sure they will accept tax prepayments, and be sure to account for the penalties for deferring your state income tax.


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