Year End Tax Planning: Increase Your Deductions For 2011
BOSTON (CBS) - I don't know what Congress is planning to do regarding tax changes. What I do know 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 23.5 cents a mile for the first half of the year and 19 cents for the second half. The easiest way to do that is check your calendar to calculate how often you've been to the hospital and doctors.
- 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 that closet 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.
