I happen to love April Fool’s Day. There are the fools like me who love the pranks and fun, and many more who think of April as heralding spring and bunnies and chocolate. However, the first of the month seems to bring out a closeted group of individuals who believe that April simply exists as a Countdown to Tax Day. They dread each of the first 14 days of the month, knowing that at some point they will have to actually sit down and pull some numbers together for Uncle Sam (and all his relatives). This event usually involves frustration and disorganization, especially if you end up owing the government more money.
These Last-Minute-Tax-Preparers tend to have fewer than normal deductions, either because they are too pressed for time to pull the details together, or so sick of the process that they just want it to get it over with. You owe it to yourself to take all the deductions that you are legally entitled to. Maybe you’re ahead of the game and have actually prepared your return, but the number on line 76 (amount you owe) is bigger than you planned. Maybe you haven’t prepared your taxes yet because you don’t think you’ll be receiving a refund. Either way, here are a few things to keep in mind:
Did you take anything to Goodwill or Salvation Army in 2006? Non-cash charitable contributions are typically overlooked and undervalued. If your donated item is in good condition, write off 30-50% of what you paid for it. Use the higher write-off if clothing was brand name or in mint condition. Don’t have a receipt? Don’t worry. You are legally entitled to take the deduction if you made the donation. You only need the receipt in the event you ever need to prove it, which is highly unlikely. Do you think IRS auditors will haggle you over $2 for those Tommy Hilfiger socks?
It’s too late to add anything to your 401k, but if you have an IRA and are not covered by a 401k at work, consider depositing up to $4000 before April 15. If you have a spouse who is not covered by a 401k, you can also deposit up to $4000 into an IRA for them. This means that you could potentially decrease your adjusted gross income by up to $8,000. If you are over 50 you can deposit up to $5,000 each on a yearly basis. Talk with your tax preparer about this as there are some limitations.
Do you have young children? Consider opening a 529 qualified tuition savings plan. If you invest in Oregon’s plan, you can deduct the amount you invest (up to $2,000) on your Oregon state tax return. This is similar to an IRA in that you can deposit funds up until April 15 that apply to 2006. This is another item that a tax preparer could advise you on, relative to your specific situation.
Make sure to add up the mileage! You can deduct miles driven for charitable purposes, medical purposes and unreimbursed business miles. Most people typically don’t have enough deductions to take the medical miles, and unreimbursed business miles are subject to a 2% threshold before they are deductible. But if you are already itemizing your deductions, make sure to add in charitable miles. Every little bit counts. Didn’t keep a record? That’s okay; I recommend using Google Maps to determine round trip mileage and use that to create a spreadsheet for your records.
Lastly, remember that talking to a qualified tax preparer can help pinpoint potential deductions that relate to your specific tax situation. A personalized review of ways to decrease your tax liability for 2007 can be a very wise investment.
Special thanks to Wildboar tax (http://www.wildboartax.com). They have been saving me money since I opened my business.
Check out a new look for your noggin for spring