Year End Moves Could Trim Your 2014 Income Taxes
Posted on 12/11/2014
No one wants to pay more taxes than they have to, so use these five strategies to lower the size of the check you send Uncle Sam next April:
1. Pay Bills Early
If you itemize, pay bills early to increase your deductions. Pay your January 2015 mortgage payment and your 2015 property taxes in December 2014. If you file jointly and don’t have $12,600 in qualifying expenses ($6,300 for single filers) to make itemizing deductions worthwhile, don’t prepay your expenses. Save your payments until 2015 when you may be able to take the deductions.
Before you make any early payments, use the Internal Revenue Service’s Alternative Minimum Tax (AMT) Assistant to make sure you’re not subject to AMT. If you’re subject to AMT, you can lose some deductions, so you wouldn’t benefit from paying items early.
2. Recycle When You Remodel
When you remodel, do it in such a way that the fixtures and house parts you remove (including cabinets, bathtubs, wood floors, windows and doors) remain intact.
Donate these items to a salvage store, like Habitat for Humanity’s Restore to earn a tax deduction.
3. Spend FSA Funds On Home Improvements
Have funds left in your Flexible Spending Accounts (FSA)? You can spend them to make medically necessary home improvements to your home. Handrails in your bathroom are a good example of just such an expenditure.
Get a letter from your doctor supporting your medical need for such improvements. Many employers have adopted grace periods giving you until March 15, 2015 to spend your FSA funds.
4. Deduct Property Taxes Paid At Closing
If you bought your home in 2014, check your HUD-1 settlement statement (lines 106 and 107) to see if you reimbursed the sellers for property taxes they paid. You won’t get a 1098 from your lender showing those taxes because you paid them at settlement, and not from your escrow account.
5. Take The Home Office Deduction
Some people who have a home office don’t take the home office deduction because they fear it’s too complicated.
This year, you can take a standard deduction of $5 per square foot (up to 300 square feet) if you itemize deductions. When you use the standard home office deduction you don’t have to do the complicated calculations required to take the traditional home office deduction.
Keep in mind that tax laws and tax rules are constantly being updated and interpreted. This article contains general information, so please discuss your individual situation with a trusted tax adviser before making tax decisions.