Good intentions aside, some people race to get their taxes done and get that refund; while others are happy to wait until the day before, or, even better, get an extension. When you chose to do your taxes is much less important than how…so here are some tips for the wise.
Keeping documentation together is the name of the game here. If you give more than $250 to any one charity, you need a letter from the charity documenting that gift. Why? Because too many people were deducting items they shouldn’t have, so lets all send them a nice thank you card! (And document it. It may be tax deductible – just kidding!)
If you are a volunteer coach, you may be able to deduct your mileage, same with attending church committee meetings, serving on PTO or other volunteer mileage. It is only fourteen cents a mile, but better than not claiming it, right? If you don’t know how much to claim for used clothes, furniture, household items, you can google Salvation Army valuation guide where you can find a price guide for contributions. If you have particularly nice things, take pictures to document a higher value. Bringing snacks to school or donating paper and supplies to the classroom may also be deductible…keep the receipts!
Identity theft and tax scams:
So many evil doers in the world! Note the IRS will not CALL you. They will not EMAIL you. You can go to IRS.gov to find the latest bad acts by bad guys.
Health Savings Accounts/Medical:
Available to those with high deductible health insurance plans, these accounts can also allow you to deduct the contribution and avoid tax on qualified distributions. Amounts that go into a health savings account which are not needed for health costs can be carried over, no “use it or lose it”. Once you are 65, the amounts can come out to you tax free for health costs, and penalty free for any reason. Moral of the story, stay healthy!
Otherwise, medical deductions are limited to amounts over 10% of adjusted gross income, so try to bulk up braces, glasses, hearing aids and other big ticket items into one year. Medical mileage is also deductible.
If you are eligible, consider making an IRA contribution and letting the IRS bootstrap your retirement savings. These must be made by April 15th. For high income taxpayers, consider a “backdoor roth” whereby contributions are made to a non-deductible IRA and rolled over to a Roth IRA. Be careful, though, there are very specific rules for this and should not be done without good individualized tax advice.
Starting on November 4, 2015 a new account called the myRA became available. It is aimed at lower income earners with no employer plans, allowing them to open a retirement savings plan with minimal contributions and no fees. The interest earnings on these are pretty respectable.
File early or late, but try to pay as little as the law allows!