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FOR THE LOVE OF MONEY: Year-End Tax Countdown/Week 2
*In continuing with my step-by-step guide on those last-minute tax tips, this week I'm focusing on some last minute tax deductions. Take this week to focus on gathering all the documentation needed to deduct these expenses. Also if you need additional tax deductions, which you can now determine thanks to the "pro-forma" tax return you prepared from last week (see http://www.eurweb.com/story/eur30048.cfm), check these out. You MUST get these done before December 31st, or else you can't take advantage of them on your 2006 tax return.
Week 2, December 10-16
• Medical Expenses
Did you or your dependents have surgery or incur significant medical expenses this year? Now would be the time to add up your costs and even make a last minute appointment to see your physician or dentist. If your medical deductions are over 7.5 percent of your adjusted gross income this year, then you have enough to itemize them on your return. Make sure to track all medical expenses paid, including (but not limited to):
-- Insurance premiums
-- Co-pays
-- Prescription Medicine
-- Medical devices
-- Eye exams
-- Glasses/Contact Lenses
-- Mileage
-- Office visits
-- Hospital/Clinic expenses
-- Dental cleanings
• Charity Contributions
Who?
Charitable contributions can only be made to 501(c)(3) organizations; not a 501(3)(c), or a 501(c), or a 501 something else. Other names you may hear for 501(c)(3) organizations are charity, public charity or charitable organization. You see these organizations in every community across the U.S. What they have in common is that they are organized (i.e., created) and operated for charitable purposes.
The term, “non-profit or tax-exempt,” does not mean that the organization is a 501(c)(3) organization. Non-profit means the organization is set-up under a specific state law or statute to do and focus on certain areas (such as, social, fraternal, charitable, or business association-type activities). Tax-exempt means the organization does not pay income taxes to the IRS or a state taxing authority – like your local chamber of commerce.
But a 501(c)(3) organization is a nonprofit, tax-exempt organization that also allows you to deduct your donations (sometimes called dues) as charitable contributions. If the organization doesn’t qualify under 501(c)(3), you can’t take charitable contribution deductions for your payments or dues.
Ever wonder if your neighborhood charity is really a true 501(c)(3), or even a charity, for that matter? Does “Help Lil’ Ray Go to School” sound a little suspect to you? Never fear, this time it’s the IRS to the rescue. The IRS maintains a searchable list of all 501(c)(3)s on their website (http://www.irs.gov, see IRS Publication 78, Cumulative List of Organizations). Also, check out Guidestar’s website for tax information on 501(c)(3)s; including, revenues and expenses, down to how much the executive director makes (http://www.guidestar.org).
What?
Charitable donations come in all shapes and sizes and can be a great way to get in last minute tax deductions? Whether it’s cold hard cash or clothes to the needy they all can count as charitable contributions. Even your mileage to and from volunteer events can count. For more on charitable contributions for donating non-cash items; such as, clothes, appliances, household goods, toys, or furniture; see my November 9th column, "Say Goodbye" http://www.eurweb.com/story/eur29685.cfm.
When?
Last minute donations still may count, but how you make the donation can make all the difference here.
-- Cash Donations - These are considered made when you give them. This is probably the best way to donate money to your church on December 31st if you want it to count for 2006.
-- Checks - These count the date that the check is actually mailed. So, you may want to send the check using an express mail service or some other way that you can prove the date that you mailed it.
-- Credit card - Donations made by credit card are made on date you make the charge.
-- Pay-by-Phone - Pay-by-phone donations are made on the date that your financial institution pays the amount. So you probably don’t want to make donations using the pay-by-phone method on December 31st.
• Mortgage and Property Taxes
Did you know you might be able to deduct 13 months worth of your mortgage and property tax payments in one year? You can deduct any prepayments that you make on your loan (including prepayment penalties). You might consider prepaying your next January’s mortgage payment in December to get an extra month’s interest deduction in the current year. For example, if $500 of your monthly mortgage payment is for interest, by paying your January 2007 payment by December 31, 2006, you will have an additional $500 of mortgage interest that you can deduct on your 2006 tax return. Consider also prepaying your real estate property taxes to the taxing authority so they may be taken in a year when you need larger itemized deductions to offset income.
• Unreimbursed Employee Expenses
Has your employer refused to pay for expenses that are legitimately connected to your work? If so, you may be able to take a miscellaneous itemized deduction. You must have paid the expenses without being reimbursed. Also, you must be an employee and the expense must be of the kind that is common and accepted in your particular field or profession. Finally, if you could have been reimbursed for the expense, but you simply forgot or neglected to request reimbursement, you cannot use this deduction.
A partial list of some of the more common un-reimbursed employee business expenses include:
? Business meals and entertainment
? Depreciation on computer equipment or cellular phone
? Travel (including transportation and lodging)
? Car expenses
? Educator expenses
? Tool and supplies
? Subscriptions to magazines or online services
? Dues to professional societies or a chamber of commerce
? Licenses and regulatory fees
? Occupational Taxes
? Education expenses
? Job hunting expenses
? Work uniforms
Shannon King Nash is the author of the award-winning book entitled, "For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth." She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes. Shannon is a CPA, Tax Attorney, and regular expert commentator on KJLH FM Radio in Los Angeles, and has appeared on national television. Do you have past tax debts? Need to make an installment payment plan with the IRS or an offer in compromise? Contact the Nash Management Group at 818-986-2665 or visit www.nashgroup-usa.com.
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