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Financial Planning / Tax Strategies


Subject:  Re: Tax "Breaks" or "Credits" Date:  4/3/2002  10:27 PM
Author:  craig110 Number:  59998 of 123001

Re: every other year deductions

Yes, this works nicely. The IRS mandates that deductions have to be applied in the year they were paid, but they can't tell you in which year you have to pay things that are deductable. For example, lets take an overly simple case of a single person with no deductions except for their annual giving to a charity. To make the numbers come out dramatic, lets say this person normally gives $4,000 a year to the charity. For 2001, the standard deduction for a single person is $4,550, so if the person gives the $4,000 this year, it is effectively not deductable for them. (i.e. Donation or not, this person gets the $4,550 standard deduction so the donation doesn't change their tax position at all.) I'm not sure what the standard deduction rates are for 2002, so lets say it is the same as this year. If the person makes the $4,000 donation each year, here is what happens:

2001: $4,000 donation made, total deduction = $4,550
2002: $4,000 donation made, total deduction = $4,550
total deductions over the two years: $9,100

Now, if this person bunches up the deductions by paying everything in 2002, this is what would happen:

2001: $0 donation made, total deduction = $4,550 (remember, they still get the standard deduction amount)
2002: $8,000 donation made, total deduction = $8,000 since the actual deductions exceeded the standard deduction.
total deductions over the two years: $12,550

Bunching deductions for which you control the timing into "even/odd"