Tax time is here already, but don’t be in such a rush to file your returns that you miss valuable deductions or exclusions that could save you significant tax dollars (don’t be late, either). There are many legitimate ways to take advantage of various tax credits, and the IRS wants you to enjoy those so don’t be shy. You may be able to trim your tax bill and boost the size of your refund without cutting corners or doing anything “under the table.”
Below we outline some tax deductions you may qualify for.
Losses Caused by a Natural Disaster
If you suffered a casualty loss in a FEMA-declared disaster in 2013, you have the option to deduct the loss on an amended return for 2012. You may want to file it with your 2013 returns, depending on how much income you made in those respective years and which choice will give you the biggest write-off on your taxes. To confirm that the disaster experienced was officially declared, check the FEMA list at the FEMA website.
As far as charitable deductions are concerned, if you donated to an IRS-recognized charity you can list those contributions if you itemize on your tax returns. You may not realize that expenses incurred while working as a charity volunteer, such as the gas bought to use your vehicle to deliver meals, for instance, may also qualify at a rate of 14 cents per mile. You will need an accurate driving log, though, to prove that you didn’t also use that trip for personal or business activities. The same goes for items you bought on behalf of your charity, although if the expense receipts are $250 or more, you’ll need a letter of confirmation and authorization from the charity in addition to your receipts. Just don’t try to deduct the value of the hours you donate as a volunteer, because the IRS won’t allow that. To learn more about how volunteerism may provide you with tax deductions, check out the official IRS Publication 526.
If you own a small business or happen to be a sole proprietor, there are many expenses that you can deduct as part of the cost of doing business. You are probably well aware of those because business deductions are one of the most popular ways to trim taxes. You may not realize, though, that paying someone to prepare your taxes for you is an eligible deduction for most business owners, and so is paying for the cost of your own health care.
One of the easiest ways to document business expenses for tax season is to use a business credit card that also offers additional cards for all of your employees, preferably free of charge. Instead of chasing down receipts and collecting leftover change from employees who buy items on behalf of the business, just have them charge those expenses. Card companies also offer tools to impose limits on what employees can spend, where they can shop, and alert you if they try to use the card in an unauthorized fashion.
If you own a rental property, especially as an out-of-town owner, the possibilities become really interesting because taking care of that income-producing asset is part of the business of being a real estate investor. Some savvy taxpayers buy vacation homes, for example, and rent them out most of the year. Then when they want to go on a vacation themselves they visit the home and observe whether the property needs any repairs or updates.
Travel expenses to check on the property may also be deductible, so you can essentially write-off the major costs of your annual vacation. Hiring a realtor to act as a professional property manager to screen tenants and collect rental payments saves lots of time and headaches for absentee owners, and that fee can usually be listed as a business deduction, too.
Stock Market Losses
The stock market exceeded its all-time highs in recent months, and you may need to pay capital gains taxes on any profits you earned from selling. It’s a good idea to drop underperforming stocks during the same tax year to offset those. Normally losses on the sale of stock are deductible and can count against stock market profits or against by as much as $3,000 of your other ordinary income. In the event that a stock you purchased goes completely under and becomes worthless, you can file a claim against those losses to further limit your tax bill.
The deadline for recording those transactions is the last day of the year, December 31st. Plan ahead for 2014 because if you wait until the last day of the year you will probably miss the deadline. That’s because the major stock exchanges may be closed for the holidays but also because it takes a few days for your stock transactions to close. Buy or sell a stock on a Monday, for example, and the actual settlement date may be three business days later.
Don’t forget that contributions to your retirement account may also be eligible for a tax credit. You should contribute as much as you are allowed – as long as you can afford to – in order to take full advantage of that opportunity while ensuring a healthier financial future for yourself. The deadline for making those contributions is a bit more flexible, however, and extends right up until the April tax filing deadline.
For 2013 and 2014, the maximum you can contribute to all of your traditional and ROTH IRA accounts are the smaller of these figures:
- $5,500 – or $6,500 if you are age 50 or older
- Your taxable compensation for the year
You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. Those contributions may not all be tax deductible if you or your spouse participates in a retirement plan at work, however, so consult a tax planner for specific details or visit the retirement plan information page on the IRS website. Keep these tips in mind if you made any IRA contributions in 2013.