Tax season is upon us again. April 15th may be the official deadline to file, but it's now time to start gathering everything you'll need so you aren't scrambling in the eleventh hour.
Whether you're planning on doing your taxes yourself or turning your paperwork over to a CPA, there are certain documents you need to make the filing process as easy (and accurate) as possible—and certain things you need to know to net yourself the biggest possible savings.
Here's your tax preparation game plan.
Getting Your Paperwork in Order
Here's a comprehensive checklist of the paperwork and documentation you may need to file your taxes. Not all of these items will apply to you, but look this list over carefully to make sure you've got the ones that do.
Maximizing Your Deductions
Every year, taxpayers miss out on potential deductions they're not even aware they qualify for. Here are 10 of the most commonly overlooked tax credits and deductions you may be eligible for this year.
1. Charitable contributions – If you made any cash or property donations to charitable organizations like churches, schools and other nonprofits, gather up written proof of those donations (including estimated value of your property donation). You may be able to deduct up to 50% of your Adjusted Gross Income (or AGI).
2. State sales tax – People in all 50 states are allowed to deduct either their state income tax or the state sales taxes that they pay. However, unless you've made significant purchases in the past year and properly tracked everything, it's probably easier and more advantageous to simply deduct your state income tax. The exception, of course, happens if you live in a state with no income tax.
If you live in a state that doesn't impose an income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming), you can claim a deduction for sales tax you paid over the year. You may not get much ROI from saving every single grocery and convenience store receipt, but you could definitely net the rewards if you bought any high-cost consumer goods like vehicles, major electronics, jewelry or home furnishings.
3. Medical costs – HSA contributions can be taken as an above-the-line tax adjustment, which means that you can deduct these contributions regardless of whether or not you itemize your deductions. Gather together all records of your HSA contributions.
You may also be eligible to deduct qualified medical expenses like doctor's visits and prescription drugs if your total cost for the year exceeds 10% of your adjusted gross income (AGI), but you'll need to itemize these expenses, so be prepared to gather up lots of receipts and call up your doctors and pharmacy for printouts of any expenses you may have missed.
4. Work-related expenses– If you moved for a new job and weren't reimbursed for moving expenses (or if you're self-employed), you could claim a deduction for your moving bills. You can also claim job-hunting costs, such as resume preparation, and employment-related costs, such as the cost of buying a workplace uniform.
5. Childcare costs – You can claim childcare expenses for qualifying dependents age 13 or younger (up to $3,000 for one child or up to $6,000 for two or more children) under the Child and Dependent Care Credit—something many working parents will be happy to hear about, as childcare costs are hardly inexpensive.
6. Caring for an Elderly Parent – If you're in the "Sandwich Generation" that's paying to care for both children and aging parents, you may also qualify for the Child and Dependent Care Credit. The deduction amounts are the same as for childcare costs, but you can apply them to caring for a person of any age who physically or mentally incapable of caring for themselves.
7. Educational expenses – Education credits like the American Opportunity (Hope) Credit and the Lifetime Learning Credit can be subtracted in full from your federal income tax. Whether you're paying for your own secondary education or for a child's, gather up your tuition statements (form 1098-T), student loan interest statement (form 1098-E) and receipts for any qualified educational expenses like textbooks. If you're a K-12 teacher, you can also claim classroom expenses, so gather up receipts for supplies and other materials you purchased for your students.
8. Energy-efficiency credit – You can no longer get a tax credit for installing energy-efficient home improvements like insulation and windows, but under the Residential Renewable Energy Tax Credit, you can claim 30% of solar-electric property, solar water-heating property, fuel cell property, small wind-energy property and geothermal heat pumps.
9. Earned Income Tax Credit (EITC) – If you had low-to-moderate income in 2014, you may be able to claim this credit, which is designed to help out working people who earned under certain amounts for their household (such as $20,020 AGI for a married couple filing jointly with no children and $43,941 for a married couple finding jointly with one child). To find out if you qualify, visit the IRS's EITC Assistant.
10. Retirement tax credit (Saver's Credit) – Also for low-to-moderate income earners, the Saver's Credit allows you to claim a credit of 50%, 20% or 10% of your IRA contributions (up to $2,000 for individuals and $4,000 for married couples filing jointly).
Before you start diving into your taxes, spend a few hours making sure you have proper paperwork in place. The IRS has the right to ask for your documentation, so keep your files organized and store everything in a safe place.
Gathering the necessary paperwork holds the added benefit of making sure you don't miss any legitimate write-offs. By maximizing your tax deductions, you'll be able to keep more money in your pocket – and that's cash that you can use to pay off debt, invest, or build your savings.
Find the Right Financial Advisor for You
Free Initial Consultation. No Match Fees. No Obligation
Get registered and learn more