Page 108 - issue
P. 108
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FErleid BUNCHING: A TAX-
PolWlocekiss SAVING TECHNIQUE
BIsrael. The seminary is not an EEI,
ecause I have written many arti- $3,000 on state income tax and anoth- standard of $6,300 that she could have
cles in these pages about lowering er $3,000 on charity. Since this adds deducted automatically.
one’s taxes, I am often asked this up to $6,000, it does not pay to itemize
reasonable question: “I have only It is this dilemma that created
one job and an uncomplicated
financial situation. Can’t I do my taxes I am often asked this reasonable question:
myself using good old Turbo-Tax?”
Yes, you can, but even those with
simple returns can save money by “I have only one job and an uncomplicated
using a tax strategy called “bunching.”
Imagine a single young woman who
works as a nurse and earns $55,000 a financial situation. Can’t I do
year. She does not own a house and
therefore cannot claim a deduction for
a mortgage. Should she itemize her
deductions or claim the “standard my taxes myself using good old Turbo-Tax?”
deduction”?
A little background: There are two
kinds of tax deductions: “above the Yes, you can, but even those with
line” and “below the line.” This line has
a name; it is called “adjusted gross
income.” The deductions above the simple returns can save money by using a
AGI are allowed so long as you paid
them. The most common of these is
putting money in pensions and IRAs. tax strategy called “bunching.”
The deductions below the line are
called “itemized deductions.” These
include mortgage interest, real estate
taxes, charity, state income taxes, and,
sometimes, medical expenses. Now her deductions. She should simply bunching, and here is how it works:
here is the catch: You get to claim some claim the standard deduction of You arrange your charitable giving so
below-the-line deductions whether you $6,300. This means that she got no tax that you can itemize every other year
actually paid them or not! Everyone savings from her charity. If she upped and get the greater benefit. This means
can claim $6,300 even if she has not her charity to $4,000, however, she that, one year you give double charity,
spent a single dollar on any of these. would itemize and claim $7,000, since and the next year you give none. Our
This imaginary tax deduction is called this is higher than $6,300. Now she is nurse, for example, would claim the
the “standard deduction.” Note: If your getting a benefit from her charity, but standard of $6,300 this year, and claim
actual expenses for these categories the benefit is very small. She is really $11,000 the next year ($3,000 state
come to more than $6,300, you may only benefiting from $700 of the taxes plus $8,000 charity). Her savings
“itemize” and claim the higher amount. $4,000 in charity, since that is the every other year are now much greater
Let us say that our nurse spent amount by which she has exceeded the than when she gave her charity each
104 u www.wherewhatwhen.com u
FErleid BUNCHING: A TAX-
PolWlocekiss SAVING TECHNIQUE
BIsrael. The seminary is not an EEI,
ecause I have written many arti- $3,000 on state income tax and anoth- standard of $6,300 that she could have
cles in these pages about lowering er $3,000 on charity. Since this adds deducted automatically.
one’s taxes, I am often asked this up to $6,000, it does not pay to itemize
reasonable question: “I have only It is this dilemma that created
one job and an uncomplicated
financial situation. Can’t I do my taxes I am often asked this reasonable question:
myself using good old Turbo-Tax?”
Yes, you can, but even those with
simple returns can save money by “I have only one job and an uncomplicated
using a tax strategy called “bunching.”
Imagine a single young woman who
works as a nurse and earns $55,000 a financial situation. Can’t I do
year. She does not own a house and
therefore cannot claim a deduction for
a mortgage. Should she itemize her
deductions or claim the “standard my taxes myself using good old Turbo-Tax?”
deduction”?
A little background: There are two
kinds of tax deductions: “above the Yes, you can, but even those with
line” and “below the line.” This line has
a name; it is called “adjusted gross
income.” The deductions above the simple returns can save money by using a
AGI are allowed so long as you paid
them. The most common of these is
putting money in pensions and IRAs. tax strategy called “bunching.”
The deductions below the line are
called “itemized deductions.” These
include mortgage interest, real estate
taxes, charity, state income taxes, and,
sometimes, medical expenses. Now her deductions. She should simply bunching, and here is how it works:
here is the catch: You get to claim some claim the standard deduction of You arrange your charitable giving so
below-the-line deductions whether you $6,300. This means that she got no tax that you can itemize every other year
actually paid them or not! Everyone savings from her charity. If she upped and get the greater benefit. This means
can claim $6,300 even if she has not her charity to $4,000, however, she that, one year you give double charity,
spent a single dollar on any of these. would itemize and claim $7,000, since and the next year you give none. Our
This imaginary tax deduction is called this is higher than $6,300. Now she is nurse, for example, would claim the
the “standard deduction.” Note: If your getting a benefit from her charity, but standard of $6,300 this year, and claim
actual expenses for these categories the benefit is very small. She is really $11,000 the next year ($3,000 state
come to more than $6,300, you may only benefiting from $700 of the taxes plus $8,000 charity). Her savings
“itemize” and claim the higher amount. $4,000 in charity, since that is the every other year are now much greater
Let us say that our nurse spent amount by which she has exceeded the than when she gave her charity each
104 u www.wherewhatwhen.com u
