Four Tax Checks to Perform Before the End of the Year
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Well, it’s time to look up and do some last-minute things to clear our heads, homes, and tax issues.
1) Do winter house-clearing. Empty out closets full of clothes you haven’t worn in ages and never intend to wear. Donate the clothes that are in good condition or give some of them to people who would love them. Toss the rest into the recycling bin or turn them into useful rags.
Make a list of the things you donate—especially if they were expensive. In fact, consider taking photographs or videos for your tax file. Intuit’s ItsDeductible is a free tool you can use to help value the items for donation purposes.
2) Pay all your outstanding and upcoming medical expenses this year. In 2012, you must reduce your medical expenses by 7.5 percent before you can deduct any of them. But in 2013, the reduction will be 10 percent.
If you were able to set up a Flexible Spending Account (FSA) with your employer for 2013, leave enough unpaid medical bills to run through there. It won’t take much. The payroll exclusion was reduced to $2,500 for 2013 (down from $5,000 in 2012).
If you still have time to set up your FSA, do so. The tax savings are higher when you don’t pay any payroll or income taxes on part of your income. For instance, a $2,500 FSA is worth nearly $1,000 in tax savings (7.65 percent FICA/Medi + 25 percent IRS + 5 percent State + 1.5 percent SDI).
3) Maximize your tax deductions. Pay your 2013 installment of your property taxes in December to snag the tax deduction in 2012. If they are coming up soon, also prepay your vehicle registration renewals. And pay the January installment of your state estimated taxes in December as well.
4) Consider prepaying your January mortgage payment in December. If you do this, pay as late in the year as possible while still early enough so the payment still gets posted in 2012. The late payment ensures that you get credit for a higher interest deduction for that January payment.
The third and fourth tips don’t work every year. While they will give you higher deductions this year, your deductions for next year will be lower for those items. Plus, after the first time that you do this, you must do it again each year in order to get a full 12 months’ worth of deductions for the following year.
On the other hand, this may work for folks whose overall itemized deductions aren’t all that high. How? If you do this every other year, you increase your deductions to allow you itemize in one year and to use the standard tax deduction in alternative years. Isn’t that fun?
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
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