Before going on a spending spree to hike your deductible expenses, be absolutely certain that you'll be itemizing. Thanks to higher standard deductions - $4,850 for singles, $7,150 for heads of household, and $9,700 for joint returns in 2004 - fewer taxpayers than in the past get any benefit from itemizing. (The standard deductions are even higher for taxpayers age 65 and older and those who are legally blind.) Itemizing pays off only if your qualifying expenses total more than the standard deduction for your filing status.
If you are on the itemize-or-not borderline, your year-end strategy should focus on bunching. This is the practice of timing expenses to produce "lean" and "fat" years. In one year, you cram in as many deductible expenses as possible. For example, you can time your fourth-quarter state estimated tax payment and certain medical procedures to ensure the expenses are paid when they are will result in the greatest tax benefit. The goal is to surpass the standard-deduction amount and claim a larger write-off.
In alternating years, you skimp on deductible expenses to hold them below the standard deduction amount - because you get credit for the full standard deduction regardless of how much you actually spend. In the "lean" years, year-end plans stress pushing as many deductible expenses as possible into the following "fat" year when they'll have some value.
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