Increase your 401(k) contribution.
You can shore up your retirement savings and lower your tax bill at the same time.
Make your January payment in December.
You also can deduct 10 percent of the cost of a home improvement, up to $500, if it’s done before the end of the year. It only works if you itemize deductions, and it only works for one year. You’re pulling next year’s into this year’s taxes. Next year, you will have to do the same thing or you’ll be short one month’s payment.
Charitable contributions are fully deductible if itemized.
Charitable contributions can be the gifts that give back come tax time, as long as you remember to deduct them from your taxes. The higher your tax bracket, the greater reduction on your taxable dollars. We recommend keeping a record of the name of the charity and the amount given.
Medical costs that exceed 10% of your adjustable gross income are deductible.
For those 65 and older, 7.5% of your adjustable gross income is deductible. The following deductions could apply:
- Prescribed weight-loss programs
- Stop-smoking classes
- Acupuncture
- Chiropractic care
- Physical therapy
- Braces
- Eyeglasses
- Lead-paint removal for children
Write off a home office.
The home office must be your principal place of business, and the room can’t be used for anything else. Figure out the percentage of your home used by an office, either by square footage or by the number of rooms. Apply that percentage to mortgage interest, utilities and upkeep.
Utilize child care credit.
A single person who pays for daycare can receive credit for a percentage of that. In a two-parent household filing jointly, both must be working to claim this. We recommend that you keep records that include the name and address of the day care or individual, as well as the tax ID or Social Security number.
Consider various mileage deductions.
In addition to work-related mileage, you can deduct mileage for driving while doing charity work and for frequent doctor visits and medical treatments, such as chemotherapy, kidney dialysis and physical therapy. Keep a record and itemize these expenses.
Use a home equity loan instead of credit card debt.
Credit card debts don’t allow for tax deductions, but the interest on a home equity loan works just like the interest on a mortgage. Dan Andrews agrees. A home equity loan or a second mortgage not only would carry a lower interest rate, but also would allow for a tax deduction, while credit card interest would not.
We want to help people pay the right amount of tax. We hope that results in a low amount, but we have a responsibility to help people comply with the law by preparing a correct tax return.
Record Keeping Tips:
- If you entertain, keep receipts. Document who went to lunch or dinner with you, when, where, and what was the business purpose.
- If you drive for business, keep a log.
- If you use a cell phone for business and personal use, keep a log of all your business calls.
- If you’re self-employed, every business expense is deductible.