Maximize Your Deductions and Credits
Is itemizing worth it?
Did you itemize your deductions last year? Check out Schedule A. For 2013, the standard deduction is as follows: married filing joint get $12,200, head of household gets $8,950, and single taxpayers get $6,100. Many more taxpayers are finding it difficult to itemize. If you fall into this situation, you may benefit by "bunching." The "bunching" technique involves itemizing every other year by doubling up on itemized deductions and using the standard deduction in the next year.
Get the most out of non-cash contributions.
Give your old clothing and household items to charity and get a deduction for the fair market value. To maximize your deduction, make a list, take photos, and make sure you get a receipt. Items must be at least in good condition. Items of small value such as socks and underwear will not be counted.
Give appreciated stocks to charity.
If you give stock (held long term) that has appreciated in value to a charity, you can deduct its fair market value without having to pay tax on the gain.
Conversely, if you wish to donate stock that has decreased in value, sell it, take the loss, and give money to the charity.
Document your volunteer activities.
If you volunteer at church, school, or other non-profit organizations, keep track of your out-of-pocket expenses and log your miles driven. The tax savings can be substantial. A receipt or cancelled check for a cash expenditure is necessary. Non-cash volunteer expenses need to be receipted also, how- ever if a receipt is impractical to obtain, and the expense is under $250, detailed written records should be maintained.
Plan your vehicle donation.
You may be a loser if you pick the wrong charity. If the charity sells your vehicle, your deduction is limited to the amount the charity actually receives from the buyer. You will be issued a Form 1098-C by the charity acknowledging the donation. If the charity uses it, donates it to the poor, or improves it, you may still deduct the fair market value. So, select a charity that will either use or improve the vehicle to maximize your deduction.
Document your cash donations.
A receipt from the organization, a cancelled check, or a bank record is required to substantiate any cash donation. A log is no longer sufficient evidence, so save receipts.
Cash in on your kids.
Your kids are worth a bundle at tax time.
- The exemption for claiming a child for 2013 is $3,900. This means that the federal tax savings for each of your qualifying children is $975 if you are in the 25% bracket.
- If your 2013 income is under the phase- out range ($75,000 single/$110,000 married joint), you will get an extra $1,000 credit for each child under age 17. If you make too much to qualify, try using one of the income-reducing techniques dis- cussed earlier to possibly take advantage of this tax break.
- Your children in college might qualify you for the American Opportunity Tax Credit. The credit is 100% of the first $2,000 spent for tuition and required materials, and 25% of the second $2,000.the maximum credit is $2,500 per student for all four years of college. To qualify, your income needs to be under $90,000 ($180,000 MFJ). Also, if your tax is reduced to 0, you can still get 40% of it back.
- Try income shifting. Put income bearing securities in your kid's name and let them pay tax. The first $1,000 of income is not taxed, and the next $1,000 is taxed at only 10% for 2013. Everything over $2,000 will be taxed at your rate if your child is under 24 and a full time student.
- Missing out on all of these tax savings due to lack of kids? Adopt one. You could get a tax credit of up to $12,970.
If you need medical insurance, start a HSA.
You must be under 65, covered by a high deductible health plan, and have no other insurance in order to set up a HSA. If this is you, you can put up to $3,250 (single), $6,450 (family) into the HSA account and deduct the payment. You get a medical deduction without having to itemize. Withdrawals from the HSA are not taxed if used for medical expense.