Not making tax-deductible donations or keeping track of write-offs because you don’t understand it? You aren’t alone.
Tax preparers say millions of people do not claim tax deductions for which they are eligible because they simply don’t know the process. Write-offs are needed to decrease taxable income, which lowers what is owed to the federal government.
Professionals suggest meeting with a tax preparer or attorney to best find out how to maximize deductions and to start keeping track early in the tax year.
Question: Charities and other organizations often push for last-minute donations at the end of each calendar year. Why?
Answer: Contributing before Dec. 31 each year is a way to get a tax deduction if you think you didn’t get enough throughout the year. It is also a time many employees are given bonuses and have extra cash to spend.
Q: Do I need receipts from donations I make?
A: Yes. You must have proof of any contribution, regardless of the amount.
Q: Why do I need to be aware of the Alternative Minimum Tax?
A: According to TurboTax, the Alternative Minimums Tax is increasingly affecting the middle class. It was originally designed to stop wealthy people from using deductions to drive down tax bills. It is “figured separately from your regular tax liability and with different rules.” Taxpayers must pay whichever tax bill is higher.
Q. I’m new to the work force, why should I invest in retirement, and what does it have to do with taxes?
A. Putting cash into tax-deferred retirement accounts is a solid investment. The money isn’t taxed and some companies match 401(k) plans. A 401(k) is taken from your paycheck before taxes are taken, so it lowers your taxable income, which means paying less tax. Giving now means paying less taxes and having more for later in life. Note: You will pay tax in retirement.
Q. I have student loans, what can I do with that for tax purposes?
A. College graduates who claim their own exemption can also deduct interest paid on student loans, writing off up to $2,500 per year in interest. To do so, use Form 1040A or 1040 to claim interest paid (even if parents originally paid interest on a loan for which you are eligible).