In general, a taxpayer can claim a deductible expense in the year in which the expense is paid. Depending on individual circumstances, it usually makes to take a deduction in the earliest possible tax year to lock in the benefits of current rules and take advantage of the time value of money. Accordingly, it is a good idea to consider “lapping” your deductions by pre-paying next year’s expenses at the end of the current year.
Taxpayers commonly use this tactic with state income taxes. The final estimated state income tax payments are due on January, 15th of the following year but many taxpayers choose to make that payment before the end of the current tax year in order to accelerate the deduction. It doesn’t just work for state income taxes, however, taxpayers can pre-pay all sorts of deductible expenses. You can prepay real estate taxes, auto tabs, monthly charitable commitments, and it might even help to pay January’s health insurance bill in December.
While this strategy is especially useful for taxpayers who are on the cusp of itemizing their deductions (they can prepay in the current year to get over the threshold and then take the standard deduction the following year, continuing to repeat the pattern so long as it makes sense), it available to any taxpayer looking for a little more in their tax refund check come April.
Talk to your Lurie advisor before the end of the year and see if this strategy is right for you.