In light of the new tax bill the basic advice is this: do everything you can to load up on tax deductions in 2017.
The tax rates are going down next year, so a deduction now is worth more that it will be in 2018. On top of that, several popular deductions are disappearing next year or getting substantially limited. But if you act now, you can get the tax savings you had hoped to take in 2018 for your 2017 return.
Here are five steps to consider doing before January 1 to maximize your tax savings. Most of these savings will relate to those taxpayers who itemize deductions.
The IRS tracks every taxpayer through a Social Security number. When you file your return you need to make sure your Social Security number is accurate as well as your spouse’s if you file jointly.
Don’t forget the ID numbers of your dependents. You’ll need those numbers, too. This includes everyone you claim, from elderly parents to infants. If your kids don’t have their numbers yet, contact the Social Security Administration immediately. And don’t forget the tax identification number of the person or business that takes care of the children while you’re at work. You’ll need it if you file for the child care credit.
A missing Social Security number for any person listed on your return could cost you. The IRS could delay the processing of your return, slow down any tax refund or disallow a tax credit if you don’t have the identification numbers to support it.
Because it’s your income that Uncle Sam wants a piece of, start thinking about the employment and income data you’ll need to file.
By the end of January, every employee should get Form W-2 from his or her employer showing how much was earned, how much was taxable and just what taxes were withheld. If you have more than one job, you should get a Form W-2 from each employer.
If you’re an independent contractor, the company you worked for should send you Form 1099-MISC showing your gross earnings.
When you’re self-employed you have a bit more work to get organized. Track down all receipts and documentation for business-related expenses, from the mileage records you kept when using your car for business to the office equipment and supplies you bought to the utility bills you paid to keep the home office lights on.
Wage income isn’t the only earning that the IRS taxes. Interest earned on most savings and checking accounts is taxable. You should get official tax forms 1099-INT from each institution. You should also get Form 1099-DIV for each stock, mutual fund or money market account. Reports on the proceeds from broker transactions, if you use a broker, will be sent to you on Form 1099-B.
Now it’s time to do the preparation that could help you trim your taxable income. Costs related to your home are a good place to start.
Homeowners know the value of a mortgage. Not only does the loan get you into your house, the interest you pay on it is tax-deductible. Your lender will send you Form 1098 with this amount. Mortgage interest isn’t limited to your primary residence. If you have a vacation home, interest on that loan will be on a separate Form 1098 and is just as deductible. And don’t forget the interest you paid on a home equity loan.
Homeowners get another way to reduce what they pay Uncle Sam: claiming real estate taxes as a tax deduction.
If part of your mortgage payment each month includes an escrow amount that's used to pay annual real estate taxes, then the Form 1098 you get from your lender also will tell you this amount.
Then there are any state and local income taxes you paid. Check your W-2 for this information, and be sure to deduct those, too.
Don't own a house? Don't despair. There's still a tax deduction opportunity for you if your state or county charges a personal property tax. Most often, this tax is on autos, so if you pay, make sure the collecting tax agency sends you a statement showing how much so you can put it on your Schedule A.
Good deeds can be their own reward. They also can reward you at tax time.
When you give cash to a qualified charity, get a note from the group acknowledging your gift if it was $250 or more. If your donation was smaller, you don't need a formal receipt, but you will need some sort of documentation, such as a canceled check or bank or credit card statement, in case the IRS later has any questions.
Are you dropping off clothes and household items at a local collection center? Get a receipt for those. And make sure that the articles were in good shape. The IRS can deny deductions for anything that it deems of "minimal monetary value." In tax speak, that means you can't donate trash and then write it off.
You also can get a tax break for volunteering. You can't deduct the value of your time, but you can deduct 14 cents for each mile you drove to help the group. Documentation of your effort can be as easy as a mileage notation on your calendar on the days you worked.
Now that you have all of your information organized store it in a safe place. Deliver it organized to your preparer early in the year and you possibly safe time, money and especially grief and anxiety.
Watch for our yearly tax organizer to help your put together your records for tax time.
Thanks for your business and trust.
Elite Tax & Accounting
(801) 571-4011 phone