If you enjoy the occasional poker game like I do, you would not think about leaving your money on the table when you leave the game. In my tax preparation experience, I have noticed that many people do this every year. Your tax software will assist you to ensure that you leave no stone unturned. One commonly missed area is itemized deductions. If you are single and have more than $ 6,300 in standard deductions, or married filing jointly and have more than $ 12,600, then you need to be vigilant. Some common deductions include:
- Mortgage Interestâ€”include points paid and private mortgage insurance.
- Personal Property Taxesâ€”remember that taxes paid on the purchase of a car, boat, snowmobile or motorcycle should be included.
- Real Estate Taxesâ€”check your state tax software to see if you qualify for a property tax refund.
- Charitable Contributionsâ€”make an effort to track these throughout the year, including times you donated a bag of clothes to charity. Do not miss charitable milesâ€”I picked up supplies for a food shelf and delivered themâ€”those miles are deductible at a rate of 14 cents per mile in 2016. For admission costs to charity events and purchases of charity items, you can deduct the amount that exceeds the fair market value of the benefit received.
- Medical expensesâ€”if medical expenses exceed 10 percent of your adjusted gross income, they count. If you have an Health Savings Account (HSA), you can elect to contribute to it and avoid paying tax on your medical bills. Underfunded HSA accounts are commonly missed items. If you are single and earn $ 40,000 per year, you can contribute up to $ 3,350 to your HSA. You do not have to pay any tax on the $ 3,350, effectively saving you $502 in federal tax, not to mention your state tax savings!
Other areas that are missed include education expenses, education interest and the related education credits. Please be certain to answer all of the questions in the education screens of your professional tax software. Several great software options are availableâ€”one of the best is Sigma Tax Professional Software.
In addition to having thorough software that covers all of your bases, you must document all of your potential deductions throughout the year. Ensure that you withhold enough federal and state tax from your day job so you do not have to make additional payments. If you want a bigger refund, consider withholding at a higher rate. Though this means you are giving Uncle Sam an interest-fee loan of your money through the year, this level of enforced savings can help you save up for a single large purchase or retirement. Or how about a vacation? Your tax software can help you make these decisions as well. The interview questions within the software will pinpoint areas that you may not have considered. Right now is a good time to review your options and execute tax planning so your money will not be left on the table!