Masonry Magazine December 1992 Page. 21
If you itemize, you lose all that. On the other hand, if your itemized deductions are insufficient and you take the standard deduction, those itemized deductions that you do have are out the window! But it doesn't have to be that way. By "bunching," you can have your cake and eat it too.
What is bunching? Let's assume you are married, and have $16,000 of itemizable expenses this year. It's the last year of your mortgage payments, and next year, you expect your itemized deductions to drop to $5,800. In each year, you have enough to itemize, but you would have lost the standard deduction of $5,700 in 1991. Over two years, you would be allowed to deduct $21,800, but that's it.
Bunching allows you to adjust the timing of your expenses so they are high one year and low the next. For example, in odd years, prepay your January mortgage interest and property taxes in December. See the dentist in January, June and December one year, and only in June the next (unless, of course, you have a toothache!). Finally, plan large charitable gifts in odd years. If these represented all of your itemizable expenses, you could have gotten $21,800 of itemizable deductions in 1991 and at least a $5,700 standard deduction in 1992. This results in a $5,700 improvement over two years!
Bunching works particularly well with medical and miscellaneous deductions, as well as deductible employee expenses, the usability of which are tied directly to your adjusted gross income levels. If you will have a high income level one year and not the next, it is preferable to delay these deductions so that the income threshold will be easier to meet.
One glitch in planning
There is one glitch to all of this tax planning. As part of the Revenue Reconciliation Act of 1990, total otherwise allowable itemized deductions, except for medical costs, casualty and theft losses, and investment interest, are reduced by 3 percent of the amount your Adjusted Gross income exceeds $100,000, but by no more than 80 percent. Therefore, if you income levels fluctuate significantly from year to year, when to claim your itemized deductions will be even more important.
Although overall tax planning should begin early in the year, the above strategies may save you thousands of dollars in 1992.
GARY MANDELL is a Certified Financial Planner, Registered Investment Advisor, Certified Public Accountant and Chartered Life Underwriter. His firm, the Mandell Group, is located in Chicago. He specializes in financial planning for owners of closely held businesses and professional practices across the nation. A cum laude graduate from the Wharton School of Finance and Commerce at the University of Pennsylvania, he also holds an MBA from the Graduate School of Business at the University of Chicago.
Fringes Up
CONTRACTORS reported average employee fringe benefit costs of 20.7 percent for 1992, up.9 percent over 1991, according to the 1992 edition of the "PAS Benefit Survey for Contractors." Firms with up to $5-million in revenues spent 15.3 percent of payroll for benefits, while contractors with over $500-million in revenues experienced a cost of 28.7 percent.
Overall, in 1992, 22 percent of the contractors improved their benefit programs, while 10 percent reduced employee fringe benefits, the annual survey revealed.
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Weck glass block has once again expanded the assortment of special shapes. The new Allbend blocks allow tight but graceful turns and angles in increments of 22½° which previously could only be accomplished in wide arcs. Snaking effects can be created by reversing the Allbend and arcs widened by intermingling the Allbend with 4 x 8 or 8 x 8 blocks. 45° corners can be beautifully constructed with 2 pieces of Allbend.
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Glashaus Inc.
415 West Golf Road
Suite 13
Arlington Heights, IL 60005
708-640-6910
FAX #708-640-6955