Do You Need To Increase Your Deductions For 2012?
BOSTON (CBS) - I don't know what Congress is planning to do regarding tax changes. What I do know is that every year around the third week of December Congress decides to change the tax code. So how do you plan? For most of us I don't think we'll be radically affected next year so if you plan to itemize on your tax return you should be looking at ways to increase your deductions for this year.
- If you pay estimated taxes – pay the last quarter of your state tax in December instead of the January 15th deadline.
- Bunch your medical deductions if you are already over the 7.5% threshold of income. Pre-pay any medical or dental bills such as kid's orthodontist bills. Also keep track of the miles you have traveled for they are also deductible at 23 cents a mile. The easiest way to do that is check your calendar to calculate how often you've been to the hospital and doctors. Next year the threshold becomes 10% of income unless you are over 65.
- It may not be too late to increase your contributions to your retirement plan if your plan will allow it. And you may even be able to do the catch up in a lump sum. Check with your plan provider or benefits department. Also make some plans for next year and try to contribute the maximum you can afford.
- Clean out the closets and make a charity run to one of the Goodwill or Salvation Army drop off centers. Be reasonable as to what you take as a deduction. Remember it is used clothing you are giving them. According to the IRS you can no longer claim deductions for used clothing and "household goods" that are not in "good" condition. I still haven't figured out how the IRS is going to check on all of the things people drop off. Maybe they are using Santa's elves!
Check the Salvation Army's website to get a list for suggested deduction amount.
- Cash is always appreciated as a donation but in order to get the deduction you need to document your contribution. New rules in effect require either a bank record that supports the donation (a cancelled check) or a written statement from the charity that meets tax-law requirements. So those loose dollars you put in the Salvation Army bucket or the church collection basket can't be counted as a deduction.
- Make a charitable contribution now using your credit card and you'll get the deduction for this year and you'll pay the bill next year! Use a credit card that pays a rebate or gives frequent flyer miles and it's a win, win. You get the deduction and miles!
- Pay your real estate taxes in December instead of January if you can use the deduction this year.
- Donate your old car to a charity. Your deduction will be limited to the amount the charity receives for the car when it's sold, not its book value. The charity must provide you with a written acknowledgement within 30 days of the sale of the car. Be sure the charity is legit by checking the IRS website and downloading publication 78. It's also available in most libraries or call 1-877-829-5500 to find if the charity is listed as an IRS exempt charity.
- You cannot take a deduction for the time you spend at the food bank but you can get a deduction for the mileage driving to the food bank each week at 14 cents a mile.
One more thing: Check out those charities - http://www.networkforgood.org/, www.guidestar.org, and www.charitablechoices.org
TIPS FOR DEDUCTING CHARITABLE CONTRIBUTIONS
When preparing to file your federal tax return, don't forget your contributions to charitable organizations. Your donations could add up to a sizeable tax deduction if you itemize on IRS Form 1040, Schedule A.
Here are a few tips to ensure your contributions pay off on your tax return:
- You cannot deduct contributions made to specific individuals, political organizations and candidates. Nor can you deduct the value of your time or services and the cost of raffles, bingo or other games of chance.
- To be deductible, contributions must be made to qualified organizations.
- Only contributions actually made during the tax year are deductible.
- If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
- Donations of stock or other property are usually valued at the fair market value of the property.
- To be deductible, clothing and household items donated after August 17, 2006 must be in good used condition or better.
- Special rules apply to donation of vehicles.
- For a charitable contribution of $250 or more, you can claim a deduction only if you obtain a written acknowledgment from the qualified organization.
- If you claim a deduction on your return of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.
- Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.
....................
You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
Subscribe to Dee's Money Matters newsletter here.
