It’s getting close! The first snowfall made me realize that the end of the year is almost here, so I figured it’s time for a series of blog posts with actionable insights to help you save money before year-end.
This will be a series of weekly, bite-sized posts designed to be digestible and actionable. But keep in mind, none of this is tax advice - I don’t know your situation, and therefore CANNOT provide you with personalized advice. However, if you feel that this education isn’t going to be enough, and you want to engage a professional, just click here to schedule time with me.
Now - the good stuff.
Subject: The Itemizing Game
Deadline: 12/31/2024
Who: Anyone who itemizes deductions
Worried that your income is higher than you anticipated this year and looking for ways to decrease your taxes?
If you have these expenses
Mortgage Interest
Health Expenses
State and Local Taxes
Charitable Donations
Then you may be able to save money on taxes by adjusting your strategy.
The rules
Itemized deductions have all sorts of rules, which I wrote about in this post a few weeks ago.
The biggest is that your total itemized deductions (the most common of which are listed above) must combine to be more than your standard deduction. In 2024, the standard deduction is $14,600 for single people with no dependents, $29,200 for married couples who file jointly, and $21,900 for single people with at least one dependent.
Note, the standard deduction amounts above don’t cover all possible standard deductions. If you’re over 65, blind, or recently lost your spouse, you won’t fall neatly into the categories above.
Strategies
So, how can we use itemized deductions to save money on taxes?
Well, if you’re already going to be itemizing or your itemized deductions add up to be very close to your standard deduction, you’ll want to focus on the following:
Accelerating state and local taxes you pay
Accelerating medical spending that’s due next year
Accelerating next year’s charitable donations.
Keep in mind that these strategies work best for people who can use them to itemize in one year and take the standard deduction the next year. Like all of the tax planning I do with the people I work with, this is multi-year tax planning - looking not just at the current year, but multiple years into the future to decrease your lifetime tax liability.
State and Local Taxes
If you own your home and don’t escrow with your bank, you may be able to choose when you pay your property taxes (this year or next year). And if you make estimated tax payments, for state income taxes, you may be able to make the Q4 estimate early (in December) instead of waiting until January.
Just keep in mind that your state and local tax deduction is limited to $10k, so if you’ve already paid over $10k, it’s not worth jumping through hoops to try to pay more this year.
Medical Spending
If your medical spending is over 7.5% of your Income, you get to deduct the amount that exceeds the 7.5% floor. If you’re already there for this year and have more expenses due in the new year, you could consider paying in December to increase your itemized deductions for this year.
Charitable Donations
If you make annual donations to a cause you care about, you could consider doubling up this year and skipping next year.
If you have a large sum you’d like to donate over the next 5-10 years, you could use a Donor Advised Fund (DAF). DAFs allow you to make one large donation to an account - allowing you to take the deduction for the total contribution in the year you make it. Then, you can then donate funds from the account on whatever schedule you choose. Some DAFs even allow you to invest the proceeds - and since the earnings are all for charity, you don’t owe taxes on any of them.
Conclusion
If you don’t itemize, these strategies aren’t necessarily helpful. But if you do, they can save you thousands of dollars in taxes - as long as they’re executed correctly.
As always, keep in mind that you don't have to go it alone. I’m Austin Preece, a financial planner in Eau Claire, Wisconsin, and I work virtually with people across the US. Check out my website to see what it's like to work with me and reach out if you have any questions.
If you found this post helpful, help spread the word! Share with friends and family that you think may benefit as well. But remember, this is solely for educational purposes - it's not advice.
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