Year-End Tax Savings Tips
- Forethought and year-end action can help you save on taxes.TAX TIME image by brelsbil from Fotolia.com
Death and taxes... well, you know the adage. Inevitable though they may be, almost no one likes paying taxes -- and nearly everyone is quick to seek a way to save. Whatever your filing status, you can take steps before the end of the year to reduce your tax liability. Maximizing your deductible medical expenses, charitable donations and IRA contributions is a good start. - Medical costs may be deductible.medical tool. image by Yuri Bizgaimer from Fotolia.com
According to the IRS, you can deduct medical and dental expenses if they add up to more than 7.5 percent of your adjusted gross income (AGI). Health insurance premiums can be included as medical expenses in this calculation. Adjusted gross income is defined as "gross income minus adjustments to income," states the IRS. You typically calculate your adjusted gross income when you complete your tax return. If your income has not changed from the previous year---unless significant tax law changes have occurred---your AGI will remain to be more or less the same. If your income or filing status has changed, you may want to estimate your AGI by filling out the first portion of Form 1040, 1040A or 1040EZ.
As the IRS does allow you to deduct some elective medical procedures, such as corrective eye surgery and certain dental procedures, consider having such procedures before the end of the year to maximize your medical deductions. You can also deduct medical and dental costs for your spouse and any dependent children. Plastic surgery costs can be deducted only if the procedure is medically necessary. - Non-cash donations may be deducted to a limit.cadeau 2 image by Videovol from Fotolia.com
If you routinely donate to charities, churches, or other nonprofits, be sure to fulfill your giving goals before the year ends to get the maximum allowable deduction. If you have never been inclined toward charitable giving, you might consider starting, as the tax advantages are considerable. You can give not only cash but "cars, jewelry, paintings, stocks, real estate or clothing," according to Time.com.
Documentation is important, especially as the value of your gifts increases: If you donate $250 or more to any organization, you will need a receipt to verify the donation to the IRS. Giving property whose value exceeds $5,000 requires "a written appraisal confirming its fair market value," states Time.com. Beware, too, of giving more than you appear to have received that year: The IRS will not recognize cash contributions equal to more than half of your adjusted gross income. In addition, if you donate property, its value cannot exceed 30 percent of your AGI. For example, if you become unemployed, your income is severely reduced, and you donate a grand piano to charity, you may not be able to take the deduction. However, you may be able to carry over such excess contributions to the next tax year. - Contributions to a traditional IRA are deductible, depending on your tax filing status and your income. In any case, you will want to maximize your IRA contribution to take advantage of the available deduction. If you do not yet have an IRA, you can open one at a bank, brokerage, credit union or other financial institution. Remember, you have until the tax-filing deadline of the tax year in question to make your IRA contribution. For example, if you want to take a deduction on your 2010 tax return, you have until April 15, 2011 to fund your IRA.
