You know tax season is fast approaching when you constantly see and hear ads in which CPAs promise to save you lots of money! We at Sweeten CPA love you, our clients, (even if you aren’t our client, we’ll share the love!) and want to put in our 2 cents on how to maximize your 2011 deductions before the year ends. You’re welcome, and get to it!
If you itemize your deductions–meaning you count up various allowable deductions that will add up to more than the standard deduction (click here for 2011 standard deduction rates)–these suggestions will be possibilities for you.
1. Make a charitable donation to an organization that is tax exempt (not all are, be sure to check!), thus making your donation deductible . Plus, Christmas time makes you feel generous anyway, doesn’t it?
2. Pay your taxes early. Property taxes, state and local taxes, qualified vehicle taxes, and even back taxes are deductible on your federal return. It doesn’t matter what year it is for, only when it is paid. So you can pay next year’s taxes now and get the deduction this year.
3. Get medical or dental work done, or buy medical equipment (like new glasses) that you have been meaning to pay for/buy. OR pay off an outstanding medical bill (remember, it counts when paid, not incurred). Qualified medical expenses are deductible. However, the requirements make it so that a large amount will need to have been paid to see any benefit. See here for more information.
(Everyone can take advantage of the following tax deductions, whether you itemize or not!)
4. Pay your (or your dependent child’s) tuition in advance. Again, it doesn’t matter what year it is applied to, only when it is paid. Monies paid toward tuition (and sometimes school supplies!) are eligible for various credits and deductions.
5. Fund your retirement account. Contributions to a traditional IRA are tax-free, or deductible (same thing) up to the annual max of $5k, or $6k if you are over 50 years old. You can actually make eligible 2011 contributions all the way through April 16, 2012.
6. Be thorough. If you’re like most of us, you haven’t been 100% faithful in keeping records or your deductions. It will be worth your time to go over your bank and credit card records to fish out every possible deduction!
If you have thought, “Yes, these will all increase my deductions for 2011, but it will technically lower the possible deductions for 2012,” then give yourself applause for your sharp mind. Here’s the idea: It is better to pay a dollar tomorrow than today, and it is better to save a dollar today than tomorrow. It comes from the finance theory called the time value of money that says a dollar is worth more today than tomorrow. But we won’t get into that now. Just trust us.