By ALLISON REYNOLDS
1. This is the time of year when everyone starts preparing for tax season. What’s something people always forget to count that saves quite a bit?
Missed deductions and credits are some of the most costly mistakes an individual can make when filing their tax return. Some of the most commonly missed tax savings involve itemized deductions. If you are eligible to itemize, you may be able to deduct real estate taxes, mortgage interest, cash and non-cash contributions to charitable organizations, points paid to refinance your mortgage, job search costs, tax preparation fees, and unreimbursed employee expenses. The items listed here are not an extensive list, just some of the most common items that a taxpayer may have. Check with your tax advisor to see if you are eligible to itemize and may be able to take advantage of these deductions.
You may also be eligible to claim a credit against your income taxes, which is a dollar for dollar reduction in tax, some may even generate a refund when no tax has been paid. Anyone with children in college knows how much the higher education credit can reduce your tax bill. Some other credits you may be able to take advantage of are the child and dependent care credit, the retirement savings credit, the adoption credit, the small employer health insurance credit, and of course no one can forget the earned income credit. Again all of these credits have different qualifications and limitations, please consult your tax advisor to see if you may be eligible to claim any of these credits.
Don’t forget about above-the-line deductions such as the student loan interest deduction, moving expense deduction, self-employed health insurance deduction, and the traditional IRA contribution deduction. There are some limits related to these deductions, so please consult with your tax advisor.
2.What are some things that you can gather each month to prepare for the upcoming tax year?
Most people try to avoid preparing for their tax return during the year. However, you will be better equipped to file your return if you maintain things throughout the year. If you are self-employed it is even more important to gather tax information during the year. Self-employed individuals typically need to track their income and expenses by type such as supplies, meals, travel, etc.
Some may find accounting software to be useful in tracking this information such as Quickbooks or Peachtree. If it is fairly simple, then you may be able to utilize an Excel spreadsheet instead. Another important item to track is your business mileage by using a mileage log that details the number and purpose of business miles driven during the year. You should also document the beginning and ending odometer reading each year. You may do this by getting your oil changed around the end of the year. You might be surprised to see how many miles you are driving each year for business purposes.
If you are not self-employed, there are still some items that you should track during the year, especially if you can itemize. I would suggest maintaining an Excel spreadsheet for your medical expenses, cash and non-cash contributions to charitable organizations, job search costs, and unreimbursed employee expenses. For your non-cash contributions make a list of the items donated to the organization and attach it to the receipt you obtain. You could be asked to produce this list if you are ever audited.