Tax Deductible Items

Tax deductions are a great way to save money on regular purchases within certain categories. The standard deduction alone saved some 85 million American’s a little over 0.5 trillion dollars in 2009. But the real way to claim deductions is by filing a Schedule A along with your 1040 long form. Categories of deductions available on the Schedule A include Medical, Taxes, Charity, Education, Mortgage and Causalities.

Deductions for Medical Expenses: Medical expenses are deductible on your tax return once you clear a certain level of your income in expenses, 7.5%. For this reason it is a good ideal to group major medical procedure in the same year to allow for them to be deductible. Items such as doctor’s bills, hospital visits, operations, prescriptions, premiums, and health care for dependents are deductible.

Taxes for State and Local: The state and the local government in your area collects income taxes, that’s the bad news. The good news is that the Federal government allows to deduct these tax expenses. Check the IRS website for a list of local and state taxes that you can deduct as not all taxes are deductible. TurboTax also is a good resource for what taxes you can deduct when preparing your tax return.

Charity Donations: Donations to charitable organizations, such as churches, are deductible without limit. When you provide transportation for a charitable event you can deduct the mileage. And when you purchase a ticket to a charitable event that is more expensive than the value of the service or entertainment provided, you can deduct the difference. Keep records of all your gifts.

Education Expenses: The federal government wants to support education and therefore gives tax deductions for expenses incurred while obtaining education degrees. The rules have changed recently with ARRA (the American Recovery and Reinvestment Act) but generally provides $2,500 per student in deductions for education.

Ten Tax Tips for Year End

Ten Tax Tips for Year End

Trimming your tax expenses is very important today as many are struggling in this economy to pay their bills and afford some luxuries. That is why doing these 10 things before the end of the tax year is very important. Don’t wait until it is time to prepare your taxes to start thinking about reducing your tax liability, start planning and preparing well in advance.

New Tax Breaks: Make sure to check the tax code when it becomes available in fall for new tax changes that may affect you and follow any new federal tax laws that are passed this year that provide new ways to save on your taxes.

Accelerate Deductions: If you pay estimated tax payments during the year, pay your first payment for next year this year. This will give you the tax advantage in the current year. You can even pay the estimated taxes with credit and quickly pay it off after you receive your refund.

Delay Income: If you are self-employed or run a small business on the side, wait until January to bill your clients. That way the income becomes taxable next year instead of being taxable in the current tax year.

File your Taxes on Time: Avoid penalties and interest by filing your return on time. An extension only delays the filing of the return, the taxes due are due on April 15th regardless of filing a tax extension. You will need to estimate the taxes you owe when you file the extension and send the IRS a check.

Pay Medical Expenses This Year: By grouping your medical expenses into the same you may qualify for the medical expense deduction. This has a 7.5% floor that you must get over to qualify. So if you have one procedure early in the tax year, try to have another needed procedure during the same tax year to get the deduction.

Make an Extra Mortgage Payment: Pay January’s mortgage payment in December to get the interest deduction this year. Of course you will be light when it comes to interest paid next year, but getting the deduction a year early is worth it.

Offset Investment gains with Losses: If you cashed out investment gains in a taxable account this year, make sure to cash out some losing investments before the year ends so your net income on the sales is close to zero.

Property Taxes: Like your mortgage payments, you can pay your property taxes early and get the deduction in this tax year. These two early payments can make a big difference in your tax return when you file next year.

Gift Giving: You can make charitable gifts to organizations and churches before the end of the year and get a nice deduction. Also consider giving gifts within the gifting limits prior to the end of the year to children and grandchild.

Retirement Contributions: This tip can be completed after the end of the year as long as all contributions are made by April 13th. Plan ahead into what kinds of retirement accounts you will make contributions to get the maximum tax benefit this year and when you withdrawal the money in retirement.