Bundling Deductions and Tax Savings: How to Take Advantage of Your Deduction Options

Sean Sevey |

What Are Bundled Deductions?

Bundled deductions are a way to save money on taxes by organizing your expenses in a smart way. In 2024, you can make the most of this method by paying for future expenses now. This way, you can use those costs to lower your taxes for the current year. If you expect to earn less money in 2025, bundling deductions can help you pay less in taxes. It's like saving more money by bringing some expenses from the future to today.

Let's talk about some common expenses and how you can bundle them to save money:

1. **Mortgage Interest Payment Deductions:**

Normally, we pay our mortgage every month. But, if you pay your January 1st, 2024 mortgage a bit early in December, you can include an extra month in your 2024 tax-year. This means you can deduct more mortgage interest on your 2024 tax return.

2. **Medical Expense Deductions:**

You can deduct medical expenses if they are more than 10% of your income. This can be hard if you haven't had many medical expenses. For example, if your income is $100,000, you can only deduct medical costs over $10,000. To make it easier, you can bundle medical costs by paying for dental and orthodontic services, insurance premiums, lab tests, and supplies in advance.

3. **Charitable Giving Expense Deductions:**

Donating to charities can lower your taxes. If you give $250 per month to your local church, it's better to make a bigger donation in December and skip the first few months of giving in 2025. You can also explore a Donor Advised Fund (DAF) for more flexibility in spreading your donations over time.

4. **Upcoming Retirement and the Benefit of Bunching:**

When people retire and start enjoying their benefits, they often use the standard deduction. Taking advantage of bundled deductions in their last high-income year can be very helpful.

These ideas have helped others, and they might be useful for you too. But remember, tax rules can change, so it's a good idea to check your situation before deciding if bundled deductions are right for you.

Wondering how this can benefit you? At Sevey Wealth, we have a strategy for this... do you?