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Unlocking Hidden Savings: A Tax Hack for Middle-Class Families
Let’s talk about a clever tax strategy that often flies under the radar: bunching itemized deductions. It’s a simple but smart way to maximize your tax savings without drastically changing your spending habits.
Here’s the scoop. Most people stick with the standard deduction because their annual deductible expenses—like mortgage interest, charitable donations, and medical bills—don’t add up to enough to itemize. But with a little planning, you can group (or “bunch”) these expenses into one year, potentially allowing you to itemize and save more on your taxes.
How Does It Work?
It’s all about timing. Instead of spreading deductible expenses across multiple years, you concentrate them into one tax year. For example:
- Charitable Donations: Instead of donating $5,000 every year, donate $10,000 in one year and skip the next.
- Medical Expenses: If you have elective procedures coming up, try to schedule them within the same calendar year.
- Other Deductions: Consider prepaying deductible expenses like property taxes if it makes sense for your financial situation.
By doing this, your total itemized deductions for that year could exceed the standard deduction (currently $27,700 for married couples filing jointly in 2025). The next year, you simply take the standard deduction again.
Why Is This Overlooked?
People usually think year-to-year, but this strategy involves planning across multiple years. It’s not complicated—you’re just shifting the timing of expenses you already plan to incur. Plus, pairing this method with advice from a tax professional ensures you’re following IRS rules while getting the most out of your deductions.
So, if you’re looking for a way to save more on your taxes, bunching deductions might be the trick you didn’t know you needed. Why not give it a try and see how much more you could keep in your pocket?
RMDs: When to Take Them and What to Do If You Miss the Deadline
Hey there, retirees! If you’re nearing—or already hit—the magic age of 73, chances are you’ve heard about Required Minimum Distributions (RMDs). These mandatory withdrawals from your retirement accounts can feel like another hoop to jump through, but don’t worry—I’m here to make it simple. And if you’re worried you missed your first one, don’t panic—you’ve got options. Let’s break it down!
When Do You Need to Take Your First RMD?
So, here’s the deal: when you turn 73, the IRS says it’s time to start withdrawing from those tax-deferred accounts—like IRAs and 401(k)s. You can take your first RMD anytime in the year you turn 73. For example, if you celebrate your 73rd birthday in 2025, you can take your RMD at any point during 2025.
But here’s the kicker: the IRS gives you a little breathing room for that first RMD. You have until April 1 of the following year to take it. This means if you turn 73 in 2025, you can wait until April 1, 2026, to complete your first withdrawal.
What Happens If You Wait Until April 1?
Here’s where some planning comes in. If you wait until April 1 to take your first RMD, you’ll also need to take your second RMD by December 31 of that same year. Yep, two RMDs in one year. While this is perfectly legal, it could bump you into a higher tax bracket depending on the amount and your other income. Taking your first RMD earlier in the year can help smooth out your taxes—something worth considering.
What If You Miss the Deadline?
Uh-oh—did you forget to take that first RMD by April 1? Don’t panic! You’re not doomed to face penalties just yet. The IRS understands that mistakes happen, and they offer a way to fix it. If you missed your first RMD deadline, you can request a waiver of the penalty by:
- Taking the missed RMD as soon as possible.
- Filing IRS Form 5329 (don’t worry, it’s easier than it sounds) and including a letter explaining why you missed the deadline. Common reasons, like illness or a misunderstanding of the rules, are usually considered valid.
The penalty for missing an RMD is 50% of the amount you failed to withdraw, but if you take action quickly and explain your situation, the IRS may waive it entirely.
How to Stay on Track
Here are some tips to avoid future headaches:
- Set a Reminder: Mark those key dates on your calendar—April 1 for the first RMD and December 31 for all the rest.
- Work with Your Financial Institution: Many retirement account custodians can calculate your RMD and even automate the withdrawals for you.
- Plan for Tax Implications: Talk to your financial advisor to strategize the timing of your withdrawals and manage your tax burden effectively.
Final Thoughts
Taking your first RMD might seem like a chore, but with a little planning (and some backup if you miss the deadline), it’s a manageable part of your retirement journey. Whether you decide to withdraw early in the year or use that April 1 extension, what matters most is staying informed and proactive.
You’ve worked hard to build your savings—now it’s time to make the most of them. Let me know if you’d like a deeper dive into any of these details!
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