9 Easy Ways to Reduce Your Tax Bill Series - Tip #3

Over the next weeks we are going to provide you 9 easy ways to reduce your tax liability - 2016 Edition. Every Monday and Wednesday we will be posting a new tip, so stay tuned!

Tax Tip #3

Another commonly overlooked strategy by those who are near the limit on their itemized deductions is prepaying expenses that are deductible. For instance, if, in 2016, you were planning on spending approximately $10,000 on deductible expenses—health insurance, property taxes, charitable donations, excise taxes, or other itemized deductions—then you could prepay next year's charitable contributions, next year's health insurance, and in some cases, even next year's property taxes.

For example, if a person paid all of their 2016 and 2017 expenses at the end of calendar year 2016, $20,000 of paid expenses would allow them to itemize and take greater deductions. Then, in 2017, they would simply claim the standard deduction because they would have no expenses that were on the itemized list. They were prepaid in 2016. This strategy leaves a smart tax payer in an every-other-year posture—one year, double up, file the long form and itemize; the next year, claim standard deductions; the next year, double up and itemize; the next year, take the standard deduction. (In sequence: itemize-standard deduction-itemize-standard deduction.)

For people with the proper cash flow and circumstances, this is an excellent strategy for tax savings especially now that its 10% up from 7.5%.