Author Topic: Itemize vs. Standard Deduction: Any shortcut?  (Read 2168 times)

Melisande

  • Stubble
  • **
  • Posts: 165
Itemize vs. Standard Deduction: Any shortcut?
« on: March 08, 2017, 10:53:18 AM »
Last year, I spent hours working on all our itemized deductions, only to have TurboTax tell me in the end that we'd get a bigger refund with the standard deduction.

Is there anyway of doing some back of the envelop calculations ahead of time to see whether or not it will be worth it to go through all of that again this year or whether we should just take the standard deduction.

Our standard deduction this year is $12,600 (married filing jointly). Our main deductions -- mortgage interest; property tax and charitable donations will work out to around $11,000. I'm using TurboTax, so I don't see the actual tax form itself and I haven't entered all the data for various charitable donations and other. Is there any complexity to the calculation that the IRS/TurboTax does? Are certain deductions weighted differently? Or is $1 of itemized deductions (no matter what kind) = $1 of standard deduction.

I'm also thinking that however the deductions are calculated, our spending has not significantly changed from last year (and in fact is probably a little less, since the amount we paid toward mortgage interest was lower), so the result will probably be the same.

So, just go with the standard deduction, right? This is what I'm thinking, but it sure feels like copping out and not doing all the hard work I feel like I am supposed to do for my taxes.

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #1 on: March 08, 2017, 10:59:06 AM »
You can also deduct sales taxes, and there is a safe-harbor estimate you can use there.  Might be a few other things as well to push you over the top.

But yeah, ultimately comes down to "Itemized > Standard then Itemized else Standard".

Drifterrider

  • Handlebar Stache
  • *****
  • Posts: 1122
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #2 on: March 08, 2017, 11:11:29 AM »
So, just go with the standard deduction, right?

If you want the easy route, sure.  If you want the route that will keep the most of your money in your pocket, invest the time to run the calculations all ways.  Tax software is easily available and generally you can find a way to use it at no cost.

If married, always run the numbers MFJ and MFS. 

If you have the same numbers (income/outgo) this year as last you might consider skipping a few steps.  It is your money so make the choice that is right for you. 

Your time spent is an investment in YOU.  How much are you worth????

Tiger Stache

  • Stubble
  • **
  • Posts: 115
  • Location: NOLA
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #3 on: March 08, 2017, 11:24:27 AM »
TT is just using Schedule A to tabulate, which you should do yourself by hand as backup anyway. It shouldn't take hours unless you have a lot of receipts or documents.

Errol Flynn

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #4 on: March 08, 2017, 11:55:05 AM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

MDM

  • Walrus Stache
  • *******
  • Posts: 6956
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #5 on: March 08, 2017, 12:12:18 PM »
I'm using TurboTax, so I don't see the actual tax form itself....
Can you use View>Forms (or <ctrl>2) to see the forms?

solon

  • Handlebar Stache
  • *****
  • Posts: 1028
  • Age: 1817
  • Location: CO
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #6 on: March 08, 2017, 12:19:24 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

This isn't quite right. Charitable contributions must be made during the tax year. You can't make a contribution for 2015 in January 2016, for example.

See "Timing of Contributions", half way down this page: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #7 on: March 08, 2017, 12:24:46 PM »
Cheddar is saying instead of donating

$XXXX in Dec 2017 and $XXXX in Dec 2018, etc.

donate $XXXX in Jan 2018 and $XXXX in Dec 2018

now you've got double the donations in 2018, you can take SD in odd years and itemized in even years vs taking the SD every year.  No real impact to the organizations (no more than 1 month of float) and you save taxes vs. the other way.
« Last Edit: March 08, 2017, 12:26:43 PM by dandarc »

MDM

  • Walrus Stache
  • *******
  • Posts: 6956
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #8 on: March 08, 2017, 12:24:54 PM »
Charitable contributions must be made during the tax year. You can't make a contribution for 2015 in January 2016, for example.
Exactly.

But re-read the "Tax Guide" quote because both you and it are saying the same thing. :)

solon

  • Handlebar Stache
  • *****
  • Posts: 1028
  • Age: 1817
  • Location: CO
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #9 on: March 08, 2017, 12:30:20 PM »
Yeah, I see that now. I was getting hung up on donating in one year, and counting it in another. Mind = expanded.

Heroes821

  • Pencil Stache
  • ****
  • Posts: 522
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #10 on: March 08, 2017, 12:43:19 PM »
So, just go with the standard deduction, right?

If you want the easy route, sure.  If you want the route that will keep the most of your money in your pocket, invest the time to run the calculations all ways.  Tax software is easily available and generally you can find a way to use it at no cost.

If married, always run the numbers MFJ and MFS. 

If you have the same numbers (income/outgo) this year as last you might consider skipping a few steps.  It is your money so make the choice that is right for you. 

Your time spent is an investment in YOU.  How much are you worth????

To go along with Drift, MMM estimates his time at minimum of $30 bucks an hour. If your current numbers are close and it takes you days of stress and typing then probably not worth it.  However if hours of time is like 4-8 and you save $2000+ that's definitely worth it in my opinion.

Aggie1999

  • Bristles
  • ***
  • Posts: 259
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #11 on: March 08, 2017, 01:16:51 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

Melisande

  • Stubble
  • **
  • Posts: 165
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #12 on: March 08, 2017, 01:37:09 PM »
TT is just using Schedule A to tabulate, which you should do yourself by hand as backup anyway. It shouldn't take hours unless you have a lot of receipts or documents.

Yes, this is the issue. It doesn't take much time to enter the information. What takes the time is finding all the information, rustling up donation confirmations/statements and receipts. I was just about to give National Audubon a call and ask if they ever sent me a donation statement (or whatever you call it). We do make the effort to do sales tax deductions when there is one or two big ticket items we purchased that year (say, a car), but if it's a matter of going back through lots of smaller receipts, I'm not sure it's worth the effort.

[ETA: We do try our very best to keep our files neat and we have most needed documents on hand, but every year it seems like we have to track down quite a few any way.]

Another question -- if we do get the itemized deductions over $12,600, but only slightly over, could it make a significant difference or not? It's just continuous, no? So that if we wind up with $12,800 in itemized deductions (after many frustrating hours), we'll get what? A maximum increase in the refund of $60 or so.
« Last Edit: March 08, 2017, 01:38:45 PM by Melisande »

MDM

  • Walrus Stache
  • *******
  • Posts: 6956
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #13 on: March 08, 2017, 01:42:11 PM »
What takes the time is finding all the information, rustling up donation confirmations/statements and receipts.
This is where Quicken or something similar can be very helpful.

Quote
Another question -- if we do get the itemized deductions over $12,600, but only slightly over, could it make a significant difference or not? It's just continuous, no? So that if we wind up with $12,800 in itemized deductions (after many frustrating hours), we'll get what? A maximum increase in the refund of $60 or so.
Yes, you save (marginal rate) * [(itemized total) - (12600)].

Melisande

  • Stubble
  • **
  • Posts: 165
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #14 on: March 08, 2017, 01:43:48 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Interesting idea. But the vast majority of our charitable giving is to our church and, believe me, as a board member, I know that they would not understand if we didn't contribute one year, then doubled it the next. It's not like the staff is going to get no salary one year, then double the next. Lol.

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #15 on: March 08, 2017, 01:53:47 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Interesting idea. But the vast majority of our charitable giving is to our church and, believe me, as a board member, I know that they would not understand if we didn't contribute one year, then doubled it the next. It's not like the staff is going to get no salary one year, then double the next. Lol.
Convince em to switch to a 6/30 fiscal year end.  That's how our church does it.

Melisande

  • Stubble
  • **
  • Posts: 165
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #16 on: March 08, 2017, 02:02:33 PM »
What takes the time is finding all the information, rustling up donation confirmations/statements and receipts.
This is where Quicken or something similar can be very helpful.

Quote
Another question -- if we do get the itemized deductions over $12,600, but only slightly over, could it make a significant difference or not? It's just continuous, no? So that if we wind up with $12,800 in itemized deductions (after many frustrating hours), we'll get what? A maximum increase in the refund of $60 or so.
Yes, you save (marginal rate) * [(itemized total) - (12600)].

So, given my example of $16,800, that would mean $56. My guesstimate was pretty close.

But back to the sales tax. There is a standard deduction for that too, a deduction based on the average American's spending habits. Well, I know we spend less than the average American and I distinctly remember that last year I spent mucho tiempo entering the info from our receipts sales ... and just getting the standard deduction in the end.

So ... our mortgage interest payments are low and getting lower (have a small loan); our property taxes are low; we don't buy a lot of stuff (not much sales tax); we give to charity (but not a huge amount and no more than last year); we don't have many medical expenses (thankfully); my husband doesn't have a lot of business expenses & mostly gets reimbursed for the one he has. My inner mustachian is saying "you never know!" But the rational side of me is thinking "And how are you going to a refund rabbit out of that hat?"

Melisande

  • Stubble
  • **
  • Posts: 165
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #17 on: March 08, 2017, 02:05:33 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Interesting idea. But the vast majority of our charitable giving is to our church and, believe me, as a board member, I know that they would not understand if we didn't contribute one year, then doubled it the next. It's not like the staff is going to get no salary one year, then double the next. Lol.
Convince em to switch to a 6/30 fiscal year end.  That's how our church does it.

Wait a sec ... that's when our fiscal year does end. And now that I think about it, I do remember our treasurer saying something about certain members donating in somewhat irregular ways for tax purposes. Hmmm. Interesting!

Psychstache

  • Pencil Stache
  • ****
  • Posts: 605
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #18 on: March 08, 2017, 02:13:32 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

You are not missing anything, this is exactly what I do. Even years are standard deduction, odd years are itemized.

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #19 on: March 08, 2017, 02:18:59 PM »
There's also state / local income tax - you can deduct that or sales tax but not both.

Thanks for this thread - the reminder about the "alternate year" thing has me thinking.

Livingthedream55

  • Stubble
  • **
  • Posts: 248
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #20 on: March 09, 2017, 10:50:30 AM »
And the medical is not a $1 for $1 deduction - it's the amount of your total medical expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older.

This is the first year in more than 25 years that I didn't itemize (downsized home so tiny amount of mortgage interest (in the hundreds!!! LOL), significantly less real estate taxes) but I am a Head of Household for another two years until younger daughter ages out so I love my Standard deduction!



wenchsenior

  • Handlebar Stache
  • *****
  • Posts: 1198
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #21 on: March 09, 2017, 12:35:49 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

You are not missing anything, this is exactly what I do. Even years are standard deduction, odd years are itemized.

Same. It's the only way we ever qualify for itemized, and in a few more years of paying down the mortgage, it won't work any more.

Cherry Lane

  • Pencil Stache
  • ****
  • Posts: 765
  • Location: Virginia
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #22 on: March 10, 2017, 06:12:24 AM »
Another thing to consider is the impact on your state taxes, if you have them. My state requires us to use the same deduction scheme as on our federal taxes, but there are additional deductions available to filers who itemize.  There may be cases where it is better to itemize on federal taxes, even though the deduction is less than the standard, if it improves the tax situation for the state.

I can't think of an example where this would actually work, since our state tax rate is so much lower than fed, but it is something to consider for the OP or anyone else who is close to the itemized line.

financepatriot@gmail.com

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Passionate about FI at www.thefinancepatriot.com
    • The Finance Patriot-  The road to early retirement
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #23 on: March 10, 2017, 09:55:25 AM »
Your mortgage interest, property tax, and charitable contributions must exceed 12,600 to itemize.

Simply add those amounts up.  Do you live in a state with state income tax?  That's deductible to, the amount you paid.  Otherwise, you can deduct sales tax off the IRS sales tax tables. 

Hope that helps. 
Passionate about FI at www.thefinancepatriot.com

financepatriot@gmail.com

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Passionate about FI at www.thefinancepatriot.com
    • The Finance Patriot-  The road to early retirement
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #24 on: March 21, 2017, 08:42:32 AM »
$1 is worth $1 as far as itemizing goes.

You can also deduct the higher of your sales taxes (from a tax table) or your state income taxes.  I don't see where you listed either. 
Passionate about FI at www.thefinancepatriot.com

Livingthedream55

  • Stubble
  • **
  • Posts: 248
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #25 on: March 22, 2017, 06:45:10 AM »

[/quote]

Yes, this is the issue. It doesn't take much time to enter the information. What takes the time is finding all the information, rustling up donation confirmations/statements and receipts.

[/quote]

Whenever I get anything tax related I :

(1) Put the paper into a paper file labelled "tax receipts for 201X"
(2) If I get an email thanking me for my donation I keep it in an email subfolder in my Gmail titled "Tax-Related 201X"
(3) Keep my check register up to date - although I use online bill pay I keep a record in my check register so I can easily add up real estate tax, etc.

Between all of that it's no more than an hour to do a back of the envelope estimate to see if I should itemize vs. take the standard deduction. It's always worth the time if you are close.



NorthernBlitz

  • Stubble
  • **
  • Posts: 145
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #26 on: March 22, 2017, 07:22:17 AM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

You are not missing anything, this is exactly what I do. Even years are standard deduction, odd years are itemized.

Can I ask the mechanics of doing this? Our property taxes are significant, but we don't have a mortgage. We pay the property taxes in lump sums in September and January.

Are you talking about paying taxes at the normal times and claiming them in different years?
OR do you have some kind of deal where you can prepay taxes for the following year?

If possible, I would like to take advantage of timing like this, but I don't understand how to implement this strategy.

Record Keeping:
I follow the same strategy as Livingthedream55.
Also, since we moved to the US (2013), we've also noticed that the tax software we use (HR Block) has always been on sale for $20 on Amazon in early January. I buy it and install it then.
Then, whenever I get a tax form I put it on my desk and input the number into the system. My guess is that doing it this way takes more total time than if I sat down and did it all in one batch, but it's a bunch of 5 minute things instead of a few hours all at once. I find that to be less stressful.

Bliss

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #27 on: March 22, 2017, 08:17:23 AM »
"In January 2016, pay your 2015 RE tax bill..."

I don't understand this. In my neck of the woods this would guarantee you a lien on your house for unpaid taxes. We pay in March and July and the county applies liens and significant penalties in December.

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #28 on: March 22, 2017, 08:29:53 AM »
"In January 2016, pay your 2015 RE tax bill..."

I don't understand this. In my neck of the woods this would guarantee you a lien on your house for unpaid taxes. We pay in March and July and the county applies liens and significant penalties in December.
Well, yeah - if your taxing authority doesn't allow it, you probably can't do that part of it.  In our area, taxes are due in April, but can be paid as early as November.  By waiting till January, I will be foregoing 2% discount on the taxes (still getting 2% - you get a 4% discount if you pay in November), but I'll be saving 25% in taxes on the amount this pushes us over the standard deduction, so that should work out.

Psychstache

  • Pencil Stache
  • ****
  • Posts: 605
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #29 on: March 22, 2017, 10:28:25 AM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

You are not missing anything, this is exactly what I do. Even years are standard deduction, odd years are itemized.

Can I ask the mechanics of doing this? Our property taxes are significant, but we don't have a mortgage. We pay the property taxes in lump sums in September and January.

Are you talking about paying taxes at the normal times and claiming them in different years?
OR do you have some kind of deal where you can prepay taxes for the following year?

If possible, I would like to take advantage of timing like this, but I don't understand how to implement this strategy.

Record Keeping:
I follow the same strategy as Livingthedream55.
Also, since we moved to the US (2013), we've also noticed that the tax software we use (HR Block) has always been on sale for $20 on Amazon in early January. I buy it and install it then.
Then, whenever I get a tax form I put it on my desk and input the number into the system. My guess is that doing it this way takes more total time than if I sat down and did it all in one batch, but it's a bunch of 5 minute things instead of a few hours all at once. I find that to be less stressful.

Sure.

The first step was cancelling the escrow account and only paying PI monthly to the bank. That was a quick trip to the bank branch and 20 minutes of my time.

In my jurisdiction, annual property tax bills are sent to us in Oct/Nov and are due in full on 1/31 unless you apply for a payment plan. Then they start tacking on penalties every month that you are late.

Since I have made odd years my itemized years, here's how it went down this year: In Nov 2016 I got my 2016 property tax bill. I sat on it and paid it on 1/5/2017 penalty free. When I get my 2017 property tax bill in Nov 2017, I will pay it on 12/30/2017.  Taxes paid on time but in the same calendar year.

dandarc

  • Magnum Stache
  • ******
  • Posts: 2888
  • Age: 34
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #30 on: March 22, 2017, 11:00:38 AM »
Just noticed this - someone who used to live in my house actually did the "every other year tax deduction" thing!

1994   R   1994    PAID   12/1994   927.17      Tax Bill
1995   R   1995    PAID   01/1996   429.68      Tax Bill
1996   R   1996    PAID   11/1996   437.70      Tax Bill

NorthernBlitz

  • Stubble
  • **
  • Posts: 145
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #31 on: March 22, 2017, 12:15:49 PM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Wow. Never thought of that. Seems like it works for people over the standard deduction too, depending on what comprises your deductions. In my case I deduct my property tax every year which slightly pushes me over the ~$6k standard deduction. If I only claimed the property taxes every other year on my taxes my two year deduction amount would be ~$18k instead of ~$12k. Of course not quite that good as I would miss out on the sales tax deduction of around $1300 for 1 of the 2 years. Still a ~$4.5k extra deduction which would have been saving me around $1k over two years in taxes.

Anything I am missing with this? If not I'm kicking myself for losing $2k in money over the last 4 years of owning my home.

You are not missing anything, this is exactly what I do. Even years are standard deduction, odd years are itemized.

Can I ask the mechanics of doing this? Our property taxes are significant, but we don't have a mortgage. We pay the property taxes in lump sums in September and January.

Are you talking about paying taxes at the normal times and claiming them in different years?
OR do you have some kind of deal where you can prepay taxes for the following year?

If possible, I would like to take advantage of timing like this, but I don't understand how to implement this strategy.

Record Keeping:
I follow the same strategy as Livingthedream55.
Also, since we moved to the US (2013), we've also noticed that the tax software we use (HR Block) has always been on sale for $20 on Amazon in early January. I buy it and install it then.
Then, whenever I get a tax form I put it on my desk and input the number into the system. My guess is that doing it this way takes more total time than if I sat down and did it all in one batch, but it's a bunch of 5 minute things instead of a few hours all at once. I find that to be less stressful.

Sure.

The first step was cancelling the escrow account and only paying PI monthly to the bank. That was a quick trip to the bank branch and 20 minutes of my time.

In my jurisdiction, annual property tax bills are sent to us in Oct/Nov and are due in full on 1/31 unless you apply for a payment plan. Then they start tacking on penalties every month that you are late.

Since I have made odd years my itemized years, here's how it went down this year: In Nov 2016 I got my 2016 property tax bill. I sat on it and paid it on 1/5/2017 penalty free. When I get my 2017 property tax bill in Nov 2017, I will pay it on 12/30/2017.  Taxes paid on time but in the same calendar year.

Thanks. It doesn't look like our payment timing options would work for this. Looks like there is no mechanism for us to pay the January payment early (don't have the bill yet) and can't pay the Sept portion late as they do not accept payments after mid Nov.

Looks like the state of NY is wise to this option and don't want to lose too much of state income tax.

Glad it works for some though.

Reynold

  • Stubble
  • **
  • Posts: 226
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #32 on: March 23, 2017, 08:19:32 AM »
Thanks. It doesn't look like our payment timing options would work for this. Looks like there is no mechanism for us to pay the January payment early (don't have the bill yet) and can't pay the Sept portion late as they do not accept payments after mid Nov.

The fact that they haven't mailed you the bill yet in January doesn't mean they haven't calculated it, or won't accept early payment, it might be worth checking with the relevant office.  You might still be able to do 1 payment/3 payments/1 payment. 

I had thought of this odd/even year stuff a while back, but in NJ it turns out that our taxes are high enough that those alone have pushed us to itemizing every year even with a 1/3/1/3 system, so now we just pay the bills as we get them.  Hopefully will become relevant again where we FIRE. :)

NorthernBlitz

  • Stubble
  • **
  • Posts: 145
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #33 on: March 23, 2017, 09:30:31 AM »
Thanks. It doesn't look like our payment timing options would work for this. Looks like there is no mechanism for us to pay the January payment early (don't have the bill yet) and can't pay the Sept portion late as they do not accept payments after mid Nov.

The fact that they haven't mailed you the bill yet in January doesn't mean they haven't calculated it, or won't accept early payment, it might be worth checking with the relevant office.  You might still be able to do 1 payment/3 payments/1 payment. 

I had thought of this odd/even year stuff a while back, but in NJ it turns out that our taxes are high enough that those alone have pushed us to itemizing every year even with a 1/3/1/3 system, so now we just pay the bills as we get them.  Hopefully will become relevant again where we FIRE. :)

Thanks for the suggestion. It's worth checking out. Our property tax usually puts us into itemized territory, but not by much. 1/3/1 would be a useful strategy for us.

TomTX

  • Magnum Stache
  • ******
  • Posts: 2602
  • Location: Texas
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #34 on: March 25, 2017, 08:14:20 AM »
If they're that close, you should refer to Cheddar Stacker's post The Mustache Tax Guide (U.S. Version) where he points out:

"If you are close to the top of the standard deduction, consider intentionally lumping expenses into one year. In 2015 forego charitable contributions and paying your real estate tax bill. In January 2016, pay your 2015 RE tax bill and make your 2015 charitable contributions. Then in December 2016, pay your 2016 RE tax bill and make your 2016 charitable contributions. The result can be a nice way to squeeze out an extra $1,000-2,000 in deductions."

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Interesting idea. But the vast majority of our charitable giving is to our church and, believe me, as a board member, I know that they would not understand if we didn't contribute one year, then doubled it the next. It's not like the staff is going to get no salary one year, then double the next. Lol.

Just tell them your standard contribution is going to be on the first Sunday in January for the upcoming year. Hand them a check the first Sunday in January.

Then the following December, hand them a check on the last Sunday in December for the upcoming year, because you "didn't want to forget" the next week.

Who is going to complain about getting a check a week early?

Unfortunately, this trick no longer works for us due to decreasing interest on the mortgage.

More unfortunately, property tax is increasing fast enough that we may need to start doing it again before the mortgage is paid off in 2021. Ugh.
« Last Edit: March 25, 2017, 08:18:23 AM by TomTX »
Credit card signup bonuses:

$150 bonus on $500 spend for Chase Freedom:
https://www.referyourchasecard.com/2/MU4TDQ1N3K

$50 bonus (no min spend, just use it once) plus double all cash back at the end of 1 year for Discover, including the initial $50:
https://refer.discover.com/s/37e3u

$500 bonus on $4,000 spend for Chase Sapphire Preferred:
https://www.referyourchasecard.com/6/Z8JIP66H7G

Kl285528

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Itemize vs. Standard Deduction: Any shortcut?
« Reply #35 on: March 25, 2017, 09:03:28 AM »
Turbotax user here.
Let the program take you through every single category in the schedule A section.
Surely you can find some unreimbursed employee expenses?
My vehicle tax and registration fees are deductible.
State and local taxes.
Charitable donations, both cash and in kind and maybe mileage for charity?
I'm self employed, so there is a whole other section I work on for deductible business expenses.
But my wife is an employee, but with a fair amount of unreimbursed mileage and business expenses.
Even work through the explanation links in each of the categories that turbotax gives you.
This may jog your thinking if you are not in the habit of trying to think of every tax deductible expense.