Itemized Tax Deductions

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renue74
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Itemized Tax Deductions

Post by renue74 » Fri Oct 13, 2017 8:58 am

I just finished my 2016 tax return (yes, I tend to always file an extension).

I'm 43 and wife is 47. We solidly in the 25% tax bracket and our itemized deductions were only $12,618, a whopping $18 over the standard deduction for married filing jointly couple.

• We are close to paying off our house ($52K left)
• We live in a area where property taxes are cheap ($1700 in 2016)
• I own a small business and have $0 employee unreimbursed expenses

The way it's looking, in 2017, we'll end up using the standard deduction and not itemizing.

I just googled this and I saw a study where people in our tax bracket typically deduct around $6,000 in employee expenses!?!!?

Is this the norm for folks? To use the standard deduction?

pshonore
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Re: Itemized Tax Deductions

Post by pshonore » Fri Oct 13, 2017 9:38 am

Unreimbursed employee expenses generally refers to W2 employees who have business expenses for which they are not reimbursed by their employer. Examples would be vehicle expenses for a car used for business purposes or a home office. It becomes an itemized deduction subject to a floor of 2% of AGI

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Pajamas
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Re: Itemized Tax Deductions

Post by Pajamas » Fri Oct 13, 2017 9:45 am

renue74 wrote:
Fri Oct 13, 2017 8:58 am
I just finished my 2016 tax return (yes, I tend to always file an extension).

I'm 43 and wife is 47. We solidly in the 25% tax bracket and our itemized deductions were only $12,618, a whopping $18 over the standard deduction for married filing jointly couple.

• We are close to paying off our house ($52K left)
• We live in a area where property taxes are cheap ($1700 in 2016)
• I own a small business and have $0 employee unreimbursed expenses

The way it's looking, in 2017, we'll end up using the standard deduction and not itemizing.

I just googled this and I saw a study where people in our tax bracket typically deduct around $6,000 in employee expenses!?!!?

Is this the norm for folks? To use the standard deduction?
There's no "norm". If you pay off your house your itemized deductions will probably be less than the standard deduction. The difference between the two amounts will probably be to your advantage since deductions are expenses in the first place. If you just like itemizing, you could always take out a loan with deductible interest or look for other deductible ways to spend money.

Mike Scott
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Re: Itemized Tax Deductions

Post by Mike Scott » Fri Oct 13, 2017 9:46 am

The "norm" has nothing to do with your individual tax return. Itemize if you exceed the standard deduction. The standard deduction is a bonus if you don't get there with itemized deductions. Spending $ to generate more itemized deductions does not pay back in $ but take a look at your expenses and the tax book to see if there are some itemized deductions you are not claiming.

Blueskies123
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Re: Itemized Tax Deductions

Post by Blueskies123 » Fri Oct 13, 2017 9:54 am

I was in the same boat. Small business owners are afforded huge tax advantages. As an employee when your mortgage interest deductions get small you are pretty much Out of luck. Max out your 401 k and HSA if your company has one.
FIRE July 2015 The US government spends nearly the ENTIRETY of its tax revenue on Social Security, Medicare, and Interest on the Debt.

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House Blend
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Re: Itemized Tax Deductions

Post by House Blend » Fri Oct 13, 2017 10:19 am

Anyone with deductions roughly similar to the standard deduction should be looking at bunching strategies.

For example, do all of your charitable donations in odd numbered years. Or mega-bunch your donations by setting up a donor advised fund.

See if you can bunch up your property tax payments, etc.

barnaclebob
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Re: Itemized Tax Deductions

Post by barnaclebob » Fri Oct 13, 2017 10:25 am

House Blend wrote:
Fri Oct 13, 2017 10:19 am
Anyone with deductions roughly similar to the standard deduction should be looking at bunching strategies.

For example, do all of your charitable donations in odd numbered years. Or mega-bunch your donations by setting up a donor advised fund.

See if you can bunch up your property tax payments, etc.
Yep, I'm going to try bunching this year and it should save me a grand or two every other year in taxes. I get to deduct sales taxes as well, no state income tax, so I'll be bunching large purchases too as much as possible.

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Peter Foley
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Location: Lake Wobegon

Re: Itemized Tax Deductions

Post by Peter Foley » Fri Oct 13, 2017 10:29 am

If you meet the criteria, some self employed persons can deduct the cost of health insurance. Have you looked into that?

livesoft
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Re: Itemized Tax Deductions

Post by livesoft » Fri Oct 13, 2017 10:34 am

renue74 wrote:
Fri Oct 13, 2017 8:58 am
I just googled this and I saw a study where people in our tax bracket typically deduct around $6,000 in employee expenses!?!!?

Is this the norm for folks? To use the standard deduction?
We used the standard deduction in 2015 because we bunched in 2016. As noted, if you could have put your $12K in deduction into next year, then you would have $0K of deductions for 2016 and $24K of deductions for 2017. That's what we did. It requires planning though.

As for the "googled this", the IRS publishes aggregate stats, but one has to read where the stats come from. It is a mistake to think that "people in our tax bracket typically deduct around $6,000 in employee expenses" because that is NOT true. The fine print usually is "of people who did use a deduction of employee expenses and who were in that tax bracket, the average deduction was $6,000." That doesn't tell you how many people didn't even use that deduction nor how many people did use that deduction.

The tax stats would tell you what the norm is for folks. Have at it: https://www.irs.gov/statistics
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avalpert
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Re: Itemized Tax Deductions

Post by avalpert » Fri Oct 13, 2017 10:40 am

Blueskies123 wrote:
Fri Oct 13, 2017 9:54 am
I was in the same boat. Small business owners are afforded huge tax advantages. As an employee when your mortgage interest deductions get small you are pretty much Out of luck. Max out your 401 k and HSA if your company has one.
This has it backwards - small business owners don't have huge tax advantages at all, for most situations they are situated similarly to any other business and their employees. On the other hand, when your itemized deductions get small enough that you are better off taking the standard deduction you aren't out of luck, you are lucky - it means you have lower overall expenses but are still allowed to reduce your tax liability; those taking itemized deductions are spending money up to the level of the standard deduction and getting no benefit from it.

scrabbler1
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Re: Itemized Tax Deductions

Post by scrabbler1 » Fri Oct 13, 2017 10:41 am

House Blend wrote:
Fri Oct 13, 2017 10:19 am
Anyone with deductions roughly similar to the standard deduction should be looking at bunching strategies.

For example, do all of your charitable donations in odd numbered years. Or mega-bunch your donations by setting up a donor advised fund.

See if you can bunch up your property tax payments, etc.
I have been teetering around the standard deduction for the last several years. I have done some bunching of deductions so I get the "bump-up" bonus in the low-deductions years while keeping some more of the deductions in the itemizing years. Medical expenses now are the big variable in determining which deduction I use on a given year's tax return. I use the 4th quarter estimated state income tax payment as a source for bunching because it can be made in 2 different calendar years.

Not having to itemize also makes my tax return a lot simpler because I may be able to switch to one of the short forms such as 1040A. One non-itemizing year, because I also had no cap gains other than cap gain distributions, I was able to use that really simple form.

When I paid off the mortgage on my co-op apartment back in 1998, my itemized deductions dropped a lot. I was still itemizing for a few years on my federal return, but I took the standard deduction on my state return because its SD is higher than the fed's, and state income taxes are (of course) not deductible on a state return.

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