December is a great time to look at your information and plan for your tax return.
Can you itemize? You can collect your receipts to see if you will be able to itemize this year. Itemize? What is that? Most people are allowed to deduct a standard deduction with no receipts. The amount you can deduct generally depends on your income, filing status, and age (65 or older). Special circumstances such as blindness and if you can be claimed as a dependent will change your standard deduction.
Single: $5,950
Head of Household: $8,700
Married filing separately: $5,950 (unless your spouse itemizes)
Married filing jointly: $11,900
What receipts can you count toward itemizing?
Medical receipts may help, but to use them for federal they must be more than 7.5% of your adjusted gross income. Medical out-of-pocket expenses for prescriptions, medical care, after tax medical insurance, Medicare, dental bills, eyeglasses, contact lenses, braces, nursing care, hospital bills, mileage for transportation for medical care. If you have a service animal, you can deduct all the expenses for the animal. Don’t forget dog food, vet fees, collars, and supplies. Just to list a few. Note: medical may help your state tax return, even if it is does not help for federal.
Interest is very limited. You can use your mortgage interest, points, and mortgage insurance premiums. Investment interest is limited by the amount of income on the investment.
Taxes: Property tax paid, state income tax or sales tax whichever is higher, and personal property tax.
Charitable donations: if you are close to having enough to itemize, consider giving non cash property to a charity. You need to get a receipt and keep a record of exactly what you donated and the condition. If you give money to a charity, write a check. If the amount is $250 or more, you also need a receipt from the organization. If you received something from the charity for the donation it is not deductible. And no, raffle tickets are not deductible.
Did you know that you can deduct mileage for charitable donations? You can also deduct any required uniforms or out of pocket expenses when volunteering for a charity.
Teachers spend a lot of money on items used in the classroom. They can only deduct $250 as an adjustment to income. If they spent more than the $250, they should get a letter from the school on the school letterhead that acknowledges the donation of the additional amount. Always keep receipts. Those small amounts will add up to a significant amount over the year.
There are other less used itemized deductions. These include gambling losses up to winnings and casualty losses. Employee business expenses include union dues and safety equipment. Employee business expenses do not include commuting to work. They must be required by the employer. Keep careful records.
Now that you have these receipts, total them. If there you have more than your standard deduction, you may want to pay outstanding medical bills prior to the end of the year. Medical expenses will be harder to deduct in 2013 when the floor amount increases to 10%. And be sure to make charitable contributions before year end.
People are talking about the Financial Cliff and ending of various tax breaks. Many feel taxes will go up for everyone in 2013. Start now to collect those receipts. Next year, it will be even more important. A simple file will work. Or label envelopes and every time you have a receipt, write the amount on the front and put it in envelope. Make this New Year’s resolution. It is better to have the receipt and not need it than to wish you had the receipt.