Most Overlooked Tax Deductions
Steps To Take Before You Prepare Your Taxes
Every tax season brings a flurry of last-minute filings. Make sure that you don’t have to scramble next year by following these tips.
Will You Use a Preparer or Not?
If you are using a preparer, find them early. Tax season is their busiest time of year. If you want assistance, you have to get in first. Get recommendations from trusted friends about who to choose. Make sure that they have a PTIN and find out what they charge in advance.
Get Your Documents Together
That’s easy because you have a neat little tax file, right? Most of us dump receipts into drawers at random. Change that now by putting all your tax documents into one file. Keep a copy of your last return on hand as a reference point. Make sure that you have the right forms for the type of income you earned. If you itemize your deductions, you’ll need the receipts too.
Make a List of All Your Personal Information
This list is something that you’ll want to hand over to the tax preparer. Make notes of rental income, property sales, and any other unusual events that happened during the year. Record any losses on the stock market, how much you’ve contributed to your retirement fund, and your medical expenses.
Do You Need An Extension?
If you’re not quite ready to file just yet, do request an extension. That gives you until the 15th of October to get things into order. Extensions aren’t the best way to go because you pay an estimate of what you owe. The IRS doesn’t pay interest on excess monies paid. That’s still better than late penalties, though.
Tax Prep Tips To Save You Money
Have you claimed the maximum tax-deductible amount? Are there some deductions that you’re missing? If you’re unsure, scheduling an appointment with a tax preparer is a good option. The tax savings might outweigh the cost of the consultation. In the meantime, here are some tips.
To Itemize Or Not To Itemize?
The new standard deduction is quite generous. If your deductions are close to this limit, it may not be worth itemizing them. Check what the current standard deduction is before deciding.
Maximize Retirement Savings
Saving would be a smart move, even if you weren’t getting a tax break for doing so. If you’re aged fifty or over, you’re allowed to add extra to your retirement fund as a “catch up” contribution. While you’re at it, consider converting your IRA to one with more favorable tax benefits, like a Roth IRA.
Use a 529 Education Savings Plan
This strategy enables you to give a gift of up to $15,000 a year tax-free. These investments should be viewed as long-term investments but can reduce your overall tax bill, so they’re worth considering. You can also save by contributing more to your medical savings accounts.
Don’t Forget Charitable Deductions
It might be worthwhile creating a donor-advised fund if you donate a lot to charity. Even if you don’t, you can still benefit. Charitable deductions can include family members as well. Many people make use of this deduction to reduce estate taxes when they pass.
Energy-Efficient Tax Deductions
The Renewable energy tax credit rewards you for using alternative energy sources. The conditions are strict, but the benefits are worth the effort. The government pays you for energy efficiency, and you save on your electricity bill over time.
Qualifying equipment includes wind, fuel-cell, geothermal, and solar technology. The credit is the equivalent of 30% of the costs, installation included. There are maximum limits for claims on fuel-cell technology but not on the other types.
Other restrictions include:
- You must use the electricity within the home. You’ll, for example, earn the credit for installing a solar-powered water tank in the bathroom. If you install one to heat your pool, however, it won’t count.
- Wind turbines must generate up to 100 kilowatts of power. You must use this power in the home too.
- Fuel-cells have to generate a minimum of 0.5 kilowatts for the home.
- The credit only applies to your primary home. You can’t claim for energy-efficient improvements for your holiday home or investment property.
- Geothermal pumps will qualify if they meet the Energy Star guidelines laid down by the federal government.
If you’re not quite ready to switch over to renewable energy yet, you don’t get the tax benefit. You can still save money on electricity by comparing the prices offered at different energy providers. It’s not quite as much as a 30% tax credit, but you can still save a lot on your monthly expenses.