Items that are often missed or forgotten if you don’t regularly meet with your preparer or they aren’t aware of changes taking place in your life.
1. You re-finance your home: Remember to bring along the HUD-1 closing statement. While many of the expenses and charges need to be capitalized, there are still several items that can be deducted in the current year.
2. Purchase a new car or other major asset? The IRS allows a deduction for income taxes paid to a state or sales taxes paid for the year (but not both). This is a definite advantage for people living in SD, TX & FL as they have no state income tax, but it does come into play for people living in MN if they didn’t pay (withhold)much in income tax and had purchases of large assets that can get added to the sales taxes paid table number that is derived based on your income. Tell your preparer about any large purchases you made in 2015.
3. Giving to charity is still a deduction – even if you don’t itemize so keep track of all your charitable giving. Minnesota allows a deduction on the state return for 50% of your charitable donations over $500. If you aren’t charitably inclined, consider giving to your charities of choice at the beginning of 1 year for the prior year, during the year for the current year, and at the end of the year for the upcoming year – thereby putting 3-years worth of giving in 1 tax year. Also remember to record what your gave to charity when you cleaned our your basement. You are allowed to take a deduction for the thrift shop value of the items given – you simply need to make a list of the items and get a receipt from the charity. Find thrift shop values for the items listed at www.goodwill.org.
4. Minnesota allows a credit or deduction for K-12 education expenses. This includes the cost for lab fees, field trips, school/class required supplies, musical instrument rental, music and art lessons and classes. Ask your preparer for more details.
5. If you have an unincorporated business it is often advantageous to hire your children to work for you. They can be paid a family wage without having to withhold social security or medicare and you as the employer doesn’t have to pay the match on those taxes or unemployment – a savings of over 15% while teaching your children the value of money and how to save. If they earn less than the standard deduction ($6,300 for 2015) they will not owe any income tax either! The $6,300 amount goes even higher if they fund a traditional IRA with some of the money they save!
6. Don’t assume that once a child is 18 and moves off to college they can no longer be claimed as your dependent – If they are full time students it is probably more advantageous for you to claim them in order to maximize the use of the education credits and dependency exemptions. Talk with your preparer about it before you let them complete their returns.
written by Joseph Maiers with J.Maiers, CPA LLC