13.5 Prepaying or Postponing Itemized Expenses

Before the end of the year, check your records for payments of deductible itemized expenses. If you find that your payments up to that time are slightly less than the allowable standard deduction for that year, accelerating payment of an expense that you would otherwise pay in the following year could allow you to itemize. For example, at the end of 2012, you may make an additional charitable contribution, or pay a state or local tax bill not due until 2013, or extend by one year professional association dues or job-related subscriptions. However, do not prepay state or local taxes if you are either subject to AMT or the deduction will make you subject to AMT (23.2). You cannot deduct prepayments of interest, insurance premiums, or rent on investment property.

Planning Reminder

Prepaying Deductible Expenses May Allow You To Itemize

As the end of the year approaches, check your records for payments of deductible itemized expenses. If these payments are slightly less than the allowable standard deduction for the year, making a year-end payment of a deductible expense that you would otherwise pay in the following year could allow you to itemize.

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On the other hand, making the year-end payment might still not increase your deductions enough to itemize. In that case, you would get no tax benefit from the payment. By postponing the payment until the next year, you may make it easier to itemize on that year’s return.

If your year-to-year payments of itemized expenses have consistently been below the standard deduction, a prepayment or postponement strategy may allow you to itemize in at least one of two consecutive years, enabling you to reduce your taxes over the two-year period without increasing your overall expenditures.