5. Bunching
Bunching is a smart tax strategy for people who want to maximize their itemized deductions. By bunching several expenses into one year, you increase the chance of going above the standard deduction amount and being able to itemize your deductions in one single year, resulting in more significant tax savings. For example, if you normally give your favorite nonprofit $1,000 a year, you can give $10,000 in one year instead.
But bunching isn’t just for charitable contributions — it can also include business expenses, medical expenses and 529 plan contributions to create a larger income tax deduction in a given year. Keep in mind that certain expenses have a cap, or limitation, on how much can be deducted per year, so make sure you understand those caps and limits so you can take full advantage of the bunching strategy.
Talk to Your Professional
Being proactive about your taxes in the optimal way for your individual situation requires the help of a financial professional. A professional can help you determine whether any — or all — of these strategies is right for you.
While death and taxes are both certain, death happens only once, while taxes come every year. So proper tax planning with a qualified professional is vital.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC (opens in new tab) or with FINRA (opens in new tab).
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Five Tax Planning Strategies to Use All Year to Lower Taxes - Kiplinger's Personal Finance
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