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With just about 60 days until the tax-filing deadline on April 15, it’s time to get moving on your return. Accountants and tax-filing software aren’t mind-readers, so they won’t know about your income sources and potential deductions unless you tell them. Here are some ideas of what to have ready to make the most of this year’s tax return.
1. Gather and organize all the right documents, receipts, and details. Tax returns require a lot of information: social security numbers for everyone on your return (including children), W-2s, 1099s, and all paperwork that may support an item claimed, such as mortgage interest statements, charitable contribution receipts, statements for amounts paid for higher education, student loan interest statements, and child and dependent care expenses. “Include expenses paid for summer day camp,” Peggy Riley, an IRS spokesperson, advises. “Many people don't realize those expenses may qualify for the child and dependent care credit.” “A good rule of thumb about gathering tax related documents is if in doubt, don’t throw it out,” says Lindsey Buchholz, tax attorney and lead tax research analyst with The Tax Institute at H&R Block. “If you aren’t sure what you’ll need to give your tax preparer, refer to what documents you needed last year, which can be a good starting point.” H&R Block also has a handy printable tax document checklist to help you gather the necessary paperwork.
2. Double-check if you qualify for the Earned Income Tax Credit. One of the credits that is most often overlooked is this credit for working low-to-moderate income taxpayers, Riley says. “The IRS estimates that 1 out of 5 [who qualify] get left out, either because they don’t know about it or they think they don’t qualify,” she says. “Income levels can be as high as $51,000, depending on the number of dependents. It is a complicated credit but there is plenty of assistance to help determine if you qualify and help you file and get the credit.” Riley suggests using the EITC Assistant on IRS.gov, or searching IRS.gov by zip code for volunteer sites at local community centers, libraries, community colleges and senior centers manned by IRS-trained volunteers who can help you.
3. Claim the right number of dependents. Experts say taxpayers often make errors not claiming relatives who are undergoing life transitions, according to the Wall Street Journal. In general, someone is a dependent if you provide more than half of their support, regardless of where they live or if they are a relative. Even if your child finished college last year, if you paid tuition and other expenses totaling more than half of her support, she may still be your dependent. Each dependent exemption is worth $3,900 for 2013, so it could have a nice effect on your refund.
4. Take advantage of deductible medical expenses. The IRS allows you to deduct qualified medical expenses that exceed 10 percent of your adjusted gross income for the year if you are under age 65, and medical expenses that exceed 7.5% of your adjusted gross income if you or your spouse are 65 or older. For taxpayers who can claim an elderly person as a dependent, they can often deduct eligible medical expenses they pay for that person. TurboTax breaks down what medical expenses are eligible.
5. Follow doctor’s orders to save money. “In April of 2002, the IRS designated obesity as a disease, and with that designation comes some tax deductions,” says money expert Jean Chatzky, financial editor for NBC’s Today Show. “Your doctor must recommend the weight loss as a way to counteract a medical issue, and the IRS wants to see proof. Weight loss to combat high blood pressure, heart disease, bad knees and high cholesterol will get you a tax savings; losing those last ten pounds will not.” Chatzky lists what is and is not deductible on her website, JeanChatzky.com. Even the costs associated with a home swimming pool could qualify if its use alleviates a medical condition, according to TurboTax, as well as could the cost of products and services to quit smoking. All of these items could help you reach the 7.5 or 10 percent of your adjusted gross income for the year to deduct medical expenses.
6. Deduct unreimbursed business expenses. Uniforms, union dues and expenses, dues to professional societies, licenses and regulatory fees, subscriptions to professional journals and trade magazines, tools and supplies used in your work, occupational taxes, a passport for a business trip, travel, transportation, meals, entertainment, gifts and local lodging related to your work, as well as job-related educational expenses, are all tax deductible, according to Jackson Hewitt Tax Service.
7. Don’t forget about expenses associated with charitable acts. While you probably know that charitable donations are tax deductible, did you know that mileage records for travel to and from Goodwill, Salvation Army, charity events, and volunteer work are too? It’s true, according to Jackson Hewitt. Plus, babysitters for when you are performing charitable deeds can also be deducted, according to eFile.
8. Look for strange things in the tax laws. For example, after orthodontists argued that playing the clarinet helps with a child’s overbite and thus should qualify as a medical expense, a provision was added to the tax laws back in 1962. Now the cost of a clarinet and clarinet lessons for a buck-toothed kid are tax deductible. Find out other strange-but-true deductions from TurboTax. You never know what might apply to you.