Most of us don’t think about our income taxes until sometime in January or even February. Yet, now is the time to take action to reduce your 2015 tax burden. Here are some suggestions:
- Contribute to your retirement account. In most cases, contributions to your retirement account reduce your taxable income dollar for dollar.
- Contribute to your health savings account. Like the retirement account, contributions to your health savings account reduces your taxable income dollar for dollar. Unlike the retirement account, as long as you use the funds in your health savings account for qualified medical expenses, you will not have to pay taxes on the distributions.
- Keep track of your child care expenses. To take the credit for child and dependent care expenses, you need to have your provider’s name, address and federal identification number, the amount you paid to them, and the name of your child who received the services.
- Keep track of your college expenses. Most people realize you can take a deduction or receive a credit for the cost of tuition and books. In addition, any expense that the college requires for the student to take classes can also be a “qualified education expense.” For example, if the student is required by the college to have a laptop computer, the cost of purchasing that computer can be a deductible expense. The operative word is “required.” If it’s not required, it’s probably not deductible.
- Keep track of any state income taxes you paid that aren’t reported on your W-2. If you paid state tax when you filed your taxes last spring or you made estimated tax payments during 2015, include those payments on the “Taxes You Paid” portion of Schedule A Itemized Deductions.
- Pay your real estate taxes. If you own your home, pay your real estate taxes and deduct them on Schedule A.
- Keep track of the taxes you pay on your vehicles.
- Save the form from your bank that shows how much mortgage interest you paid. If you paid mortgage insurance premiums, that can also be deducted.
- Keep track of all gifts you make to charity, both cash and non-cash. If you meant to have a garage sale but just didn’t get it done, make a list of those unused items and then donate them to a charity. Ask for a receipt from the charity and attach it to your list. You will be responsible for assigning values to the items donated. Many charities have sample lists of items and their thrift shop values. If you are donating large, valuable items, you may want to take a picture of the items and may also need to have the item appraised.
- Keep track of all unreimbursed employee expenses. Examples of these would be union dues, uniforms, job travel or job required education. If your employer reimbursed you for the expenses, you cannot deduct them.
- Other miscellaneous itemized deductions. Tax preparation fees and safe deposit box rent are a couple of examples.
- Medical expenses. If you have experienced a large amount of medical expenses in 2015 and you think they may add up to more than 10% of your adjusted gross income, keep track of all expenses you paid out of your pocket (not paid by insurance or not paid through your health savings account).
- Health insurance premiums.
- Payments to doctors, dentists, eye doctors, chiropractors, hospitals.
- Travel expenses (not meals) to obtain medical care.
For more information, please contact us or your tax professional. You can also obtain additional information at www.irs.gov.
Please be advised that the information contained herein is not intended to be used, nor can it be used, for the avoidance of tax penalty that the taxing authorities might assess related to this matter.
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.