The extension deadline will be here before you know it! As you are preparing your taxes, here are a few things that taxpayers tend to overlook:
- Medical Expenses
I would say the biggest deduction not included is medical expenses. It is almost impossible to itemize medical expenses on the federal tax return because of the income limitation on the Schedule A. However, if a taxpayer can itemize, Arizona allows these expenses to be 100 percent deductible. Included in these medical expenses would be mileage, so any time you get in your vehicle to travel to any type of medical appointment, keep track of the mileage. This can be kept on a calendar or mileage log. If you are itemizing medical expenses, do yourself a favor and go to the IRS website (irs.gov) and refer to publication 502 where there is a very useful list of deductible medical expenses. - Personal Property Taxes
Personal property taxes (registration fees) are deductible. This would be items such as vehicles, boats, trailers, ATVs, jet skis, snow mobiles, RVs, etc. - State and Local Income Tax vs. Sales Tax
Either state and local income tax, or sales tax paid for the year, can be deducted. When considering which is going to give you the larger deduction, you need to look at both categories. State income tax is all your state withholding from all sources. This includes any tax liability you paid to any state for any back years of taxes due, and state estimated tax payments for the current year. Sales tax deduction is when you are comparing dollars spent in sales tax. The IRS has a calculator to help figure out the deductions, which varies by your state and income level. This calculator is also where big ticket items are included that were bought during the year. Did you buy a new car or do any major home remodeling during the year? IRS publication 600 has more information on other big ticket items considered for this type of tax. Ultimately, the goal is to compare the two types of taxes to see which one will give us the higher deduction. - Charitable Donations
Everyone knows monies donated to non-profit organizations are deductible. But, did you know you can also deduct the cost of volunteer expenses acquired while performing a service for a non-profit? The cost of your time is not deductible, but you can claim the expenses that are generated from the volunteer work. Do you have children on a sports team that you happen to be coaching? Are you deducting your mileage to and from practice, games and meetings? Speaking from experience, I was the president of a local sports program and I had out-of-town mileage taking kids to the games, paying for meals to feed the kids (not your own), etc. In some situations, teams are traveling out of town for tournaments and spending the night, so the cost of the hotel would also be deductible. These expenses can be costly and add up, so be sure to keep all receipts and a log of the mileage. What about the ingredients used to make a dish for a church function, or supplies needed for teaching Sunday school? These might not seem like a lot of money, but all these expenses can decrease your taxes.
- Non-Cash Deductions
Are you keeping a list of items donated to places like Goodwill, Big Brothers Big Sisters, etc.? One way to really increase this type of deduction is to keep track of each item. I have my clients use an online tool called itsdeductible.com. Many taxpayers believe that the government only allows you to deduct up to $500 in non-cash goods. This is far from the truth. I was representing someone in an audit who had an extremely large deduction of a non-cash donation. All they had were Goodwill receipts and on each receipt was a list of what was donated, but no dollar amount for each item. The agent gave me back the receipts and told me to go back to the client and have them create an account on itsdeductible.com and list each item. I was extremely pleased to know that the IRS agent also used the website I refer to our clients. It is easy to use. Just create an account and as you list an item, it will ask you the condition of the item donated and it automatically adds the dollar value for each item. Each time you donate, log on and enter the information. The site keeps a tally of everything and at the end of the year, you simply print it out a statement and use it for your taxes. I have seen taxpayers double their non-cash donations by using this website!
- Gambling Winnings
Unfortunately, you can only write off your gambling losses up to your winnings. What happens if you do not have a record for proof of the monies lost at the casino? If you used a players card, you can get a win-loss statement from the casino. This will reflect your year-end balance and can be used for documentation of your losses.
Remember, extension deadline is Oct. 17 this year. For those real procrastinators, you have two extra days because when the due date falls on a weekend, you have until the next business day. Happy deduction hunting! FBN
By Wendy Thompson, EA
Wendy Thompson, EA is the CEO of Absolute Tax & Financial Solutions located at 5200 E Cortland Blvd. #D6, in Flagstaff. To reach her, call 928-440-5022.
