Part of putting together an effective tax management strategy is gaining an understanding of what you can and cannot deduct from your tax return. Every CPA or accountant seems to have a slightly different slant on the tax code, but here are a few that may be able to help you increase your bottom line.
- Charitable Mileage – Most taxpayers are very good at keeping receipts of their cash donations that they make to the organizations they donate to during the course of the year. One of the deductions few taxpayers pay attention to is the charitable mileage deduction. For 2011, you can deduct .14 cents per mile driven in service of charitable organizations. Don’t forget fees and tolls as well (www.irs.gov) Think about the time that you give gratuitously during the course of the year for your religious organizations, charitable causes you support, or possibly coaching a one of your kid’s teams.
- Non-Cash Charitable Contributions – Most taxpayers literally get a blank receipt from the Salvation Army, Goodwill, or some other charitable organization and then tell their accountants that they donated a bag or two. The reason you have the blank receipt is to itemize everything you give away line by line to maximize the legitimate deduction. You could go to www.satruck.com to see the Salvation Army’s list of low and high value per item, but then again you need to really examine the true fair market value of each item. Make sure you have good documentation and receipts.
- Form 2106 – If you look at the number at the bottom of page one of your personal tax return you will see an amount called your adjusted gross income. It is an important number because it sets the bar on other potential deductions you can take. Since employers today are reimbursing their employees for less and less, you should keep very close track of your unreimbursed employee expenses. You must make sure the expenses are for ordinary and necessary items that help you carry on your normal trade. You can see an entire list of possible deductions at (http://www.irs.gov/publications/p529/ar02.html) on the IRS website.
- Refinancing Points – There are many people today who are still refinancing their homes. In some of those cases, you may pay something known as points which represent 1% of your origination loan. In this case if you pay one point on a $300,000 refinance, you will have $3,000 in point costs. On a new home purchase, you get to deduct the points right away, but on a refinance you can deduct 1/30th of the points every year if it is a 30 year loan as an example. Depending on whether you have the same lender or a new lender, you can deduct the balance of the points upon the sale of your home or your next refinance.
- Including Reinvested Dividends To Your Cost Basis On The Sale Of A Mutual Fund – This isn’t really a deduction, but it can cost you an arm and a leg if you don’t keep track of your reinvested dividends. Especially for those of you who own mutual funds, every dividend you reinvest in the mutual fund will add to your overall cost basis. This is important so you avoid the trap of double taxation but underreporting you real basis in the investment at the time you sell the investment. This may be especially true for those of you who saw a rebound in your investments and are thinking about selling them now.
This material is not intended to replace the advice of a qualified attorney or a tax advisor. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional advisor.
Go to www.oxygenfinancial.net to request a tax consultation to figure out how build a tax management strategy that is right for you in 2011.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
Phone 1.800.355.9318 or 770.777.0427
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