Many expenses that may qualify as miscellaneous itemized deductions are deductible only to the extent they exceed, in aggregate, two percent of your adjusted gross income (AGI). Bunching these expenses into a single year may allow you to exceed this ‘floor.’ So now is a good time to add up your potential deductions to date to see if bunching is a smart strategy for you this year.
Should you bunch into 2016?
If your miscellaneous itemized deductions are getting close to, or they already exceed, the two percent floor, consider incurring and paying additional expenses by December 31, such as:
- Deductible investment expenses, including advisory fees, custodial fees, & publications
- Professional fees, such as tax planning & preparation, accounting, & certain legal fees
- Unreimbursed employee business expenses, including vehicle costs, travel, & allowable meals & entertainment
These expenses are not deductible for alternative minimum tax (AMT) purposes. So do not bunch them into 2016 if you might be subject to the AMT this year.
Also, if your AGI exceeds the applicable threshold, certain deductions — including miscellaneous itemized deductions — are reduced by three percent of the AGI amount that exceeds the threshold (not to exceed 80 percent of otherwise allowable deductions). For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (married filing jointly) and $155,650 (married filing separately).
If you would like more information on miscellaneous itemized deductions, the AMT or the itemized deduction limit, let us know.