In this segment of "Financial Planning Q&A" on Motley Fool Live, recorded on Dec. 1, Fool contributor Dan Caplinger shares some options for maximizing your itemized deductions.
Dan Caplinger: "We will qualify to itemize deductions." It's going to be a change this year from previous years. We want to maximize those deductions. "Besides prepaying 2022 charitable contributions, can I also prepay some of our 2022 private health insurance premiums, deduct them in 2021? Any other suggestions for bundling deductions?"
Stephanie, you probably hit on most of the major ones. The one other place I'll take a look at or suggest that you take a look at has to do with state and local taxes, whether it's property taxes or income taxes. I know a lot of folks -- that $10,000 limitation on itemized deductions for state and local taxes comes into play here.
If that is an area, you're already up against that, then obviously it's not going to do you any good to try to accelerate that. In fact, you may want not to accelerate that because I've heard some rumblings up in Congress that they may try to restore the state and local tax deduction above the $10,000 limitation.
The odds of that being effective for 2021 are just about zero, but the odds of it being effective for 2022 are in my view much higher. That would be an area where it's often easy to try to double up or at least prepay the second half of a fiscal year property taxes before the end of the year. That's traditionally been one place to look.
You may talk to your private health insurance coverage provider and just ask them how much are they going to let you prepay in advance. It's probably not going to be beyond the termination date of whatever policy that you have, and it depends on whether your private health insurance runs on a calendar year basis, or a fiscal year, or something like that.
But charity is probably the one that gives you the most flexibility. Obviously, since it's all in your own mental accounting, you can prepay as many years' worth of those charitable contributions as you want. You just need to let your charity know, "Hey, we're doing a little bit of this in advance and so don't get used to getting five years' worth of stuff all-in-a-row because this is it." If you're comfortable with that thing, then that's an easy way to go.
