As holiday celebrations take center stage in the hearts and minds of many, considerable tax time benefits can be had by those who start preparing now.
Contributions to Charities
- Only donations made to qualified, tax-exempt charities may be used as itemized deductions. If you are not sure, ask the charity about its tax-exempt status.
- Donations charged to a credit card by December 31st are deductible for 2018, even if you pay the bill in 2019. A gift by check also counts for 2018, as long as it is mailed in 2018.
- You may generally deduct your cash contributions, as well as the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats. If the total of non-cash donations exceeds $500 in a calendar year, it is necessary to complete IRS form 8283.
- If audited, you must have a written record of all cash contributions to justify a deduction. This may include a canceled check, bank or credit card statement, payroll deduction record, etc. You can also ask the charity for a written statement that shows the charity’s name, contribution(s), date(s), and amount(s).
- Gifts given to individuals (friends and family or “Go Fund Me” campaigns) are not deductible.
Start gathering records for tax preparation
This includes receipts, canceled checks and other documents that support income or deductions you will claim on your tax return. Be sure to store them in a safe place so you can easily access them later when you file your tax return.
Contribute to Retirement Accounts
Although you have up until tax day (or the date you file your tax return, whichever comes first) to claim a retirement deduction, why not get it done in advance? Unexpected complications can cause delays which could cost you a deduction.
The Retirement Savings Contribution Credit gives low to moderate income workers who contribute to IRAs, 401Ks, or similar workplace retirement plans a federal tax credit on their federal tax return. The maximum credit is up to $1,000 per individuals and $2,000 for married couples.
Note: While deductions reduce taxable income, credits directly reduce your tax bill.
Spend Down Your Flexible Account (FSA) Money
If you opened a flexible spending account for health care expenses, you could lose your money if you don’t spend it by December 31st. Some employers may let you roll over $500 in Flexible Spending Account (FSA) cash to use next year, or give you another 2 1/2 months to spend the money, but not both. Ask your human resources department if your employer has adopted either policy.
Many people spend down their FSA money by making last minute appointments to see a health care professional or pre-pay dentist or eye doctor. But those aren’t the only things you can use your FSA for–many medical and health related expenses are eligible.