Year End Tax Saving Tips for Tax Year 2011

So folks, we are down to the wire, we are 2 weeks from the end of the year, and maybe saving on your income taxes is not foremost on your mind, there are probably thoughts of family, holiday dinners, gift giving - as it should be, but you may also want to devote some time to make sure that you have taken steps to reduce your tax liability as much as you can, of course, legally.  As a reader of this personal finance blog over the years, you are familiar with the year-end reminders to do all you can to legally reduce your tax liability.   This year I am going to point you to a number of columns with that information. 

Sandra Block in a USA Today column talks about - weatherization, college tuition credits, deferring income, accelerating deductions, charitable contributions and taking advantage of sales tax particularly if you are in a state with no state income tax.

To see which consumer energy efficiency credits apply for the tax year 2011, click here.

Here is an article on CBS Money Watch which talks about the mortgage insurance deduction, enhanced adoption credits, educator expenses adjustment, plus 9 other tax tips.

"The TaxLady" blog has some tax tips on vehicles here.

Bill Lynott, freelance writer, gives some additional advice on saving on your taxes here and there is also a link to Part 1 of his post.

The Small Business Administration (SBA) has these tax saving tips for small businesses, and YAHOO Finance also has these small business tips.

If you are a small business owner and thinking of starting a 401K for your business, Stuart Robertson in a Forbes article has some ideas here. 

Rande Spiegelman, Vice President of Financial Planning, Schwab Center for Financial Research has a host of tips that could apply to you here, from double checking your income records,  tax-preferred education savings programs, to ways to gift without incurring the gift tax.

I quote directly from Rande here, because it is also my belief and practice, " After you decide what to do this year, resolve to make financial planning a year-round exercise going forward (you've probably got better things to do around the holidays). That way, it'll be easier to check your progress, update your plan and, if necessary, take action long before the ball falls in Times Square on New Year's Eve."

And remember as you locate your documentation to support your tax deductions, start cleaning out and archiving your 2011 information and set up your folders for 2012 - this way you will start the year off right, yep, I know, you say you will every year, this year you are actually going to do it, yeah!!!  

Season's Greetings and a Prosperous New Year to everyone. 

Preparing for Tax Season

Just a few more weeks before the end of the tax year.  Here Bob Meighan alerts you to some of the tips to help reduce your tax liability.   Watch.

Want a bigger refund this year?

Trying to figure a way to increase your refund or at least break even on your taxes this year?  Consider increasing your itemized deductions by making some charitable contributions.  You know, there is no point in keeping all that stuff around if it really is no longer of any use to you.   In one fell swoop you could kill three birds with one stone (animal lovers, this is figurative).   You would be:

- providing goods for those who are in need in this recessionary period
- reducing your clutter and
- increasing the deductions on your tax return if you itemize, which could decrease your tax liability.

Now remember that just about anything that has to do with your taxes has some conditions attached, check them out below to see if some additional moolah/dinero/benjamins are in your future.

1. The organization that you contribute to, must be a qualified organization, for it to be deductible. They should be able to tell you if they are qualified, but for verification you can check or Search the IRS Publication 78 which lists most qualified organizations. If the organization can show you current 501(c)3 documentation, they should fall in the qualified category - and these include most churches, and public schools.  An organization may have had its qualification revoked however, check here to verify.  
2. You have to be able to use the Form 1040, Schedule A which means that your total itemized deductions must exceed your standard deduction amount.  
3. Cash contributions are generally deductible, and for property, the fair market value is what is used.   Donations after August 17, 2006 of household goods or clothing requires that they be in good condition or better.   No more slipping those socks with holes, or blouses with permanent stains, into the contribution box.  If you donate either a clothing or household item that has a fair market value of $500 or more - you may be required to prove that you had the item appraised for that value.    
4. If you contribute to an event and your price of admission is included, or you receive goods and services in return, then your deduction is limited to the difference between your contribution and the fair market value of the benefit you received.   For example, if you make a contribution to Public Radio or Public TV and you accept the "thank you" gift, your contribution will be reduced by the fair market value of the "thank you" gift.  
5. You have to be able to prove your contribution, so KEEP good records.  If you give "cash" - keep your bank records, credit card records, payroll records, and the dated receipts from the organization showing the amount contributed.   Actual cash contributions, e.g. dollar bills and coins placed in the Salvation Army's bell ringer's bucket cannot be verified, so they would not qualify for a deduction. You could however slip in a check and that would be a part of your record once its cancelled.
6. Pledged amounts do not qualify for a deduction until they are paid, and only in the amount paid during the current tax year.  So, if you pledged $300 in July but only paid the charity $150 by Dec. 31, your deduction would only be $150.
7. Now if you made a contribution by a credit card in October of the tax year, and you do not complete paying that credit card bill until the following year - you can definitely claim the full contribution amount made on the date you used your credit card. That also applies with a debit card - say you contribute an amount on December 29th of the tax year and your bank doesn't debit your account until January 2nd of the following year - you can still claim the full amount that you contributed on Dec. 29th.
8. Any contribution in the amount of $250 or more, requires written documentation from the receiving organization to substantiate your donation.  Here's what you need to have in that documentation - the amount of cash you contributed or, a description of the goods and a good faith estimate of their value. The organization should also indicate whether you were provided any goods or services in return for your contribution.  The document should be dated and should show the date your contribution was received by the charity.
9. If your items are valued at $500 or more you must complete and attach Form 8283 to your return.
10. If your item is valued at $5000 or more - an appraisal is generally required, and you do have to complete and submit Section B of Form 8283.

So if you no longer have a use for that boat, that car, that skeleton of the armadillo, your size 6 wardrobe that you have not worn in the last 8 years or the furniture set that is taking up expensive real estate in storage or in the attic, put it on your to do list to pass those items on before December 31st this year.   Lets get that stuff moving!!

To help you figure out what your donated items may be worth, you can check out IRS information  here.   You may also want to take a look at the Goodwill Industries estimated value list of items most often donated.   The list presumes your item is in good condition or better.

Charity Begins at Home.

Deducting Charitable Contributions at Tax Time.

Many of us do good during the year, making both cash and non-cash contributions to charitable organizations. We often forget however, that we are able to take a tax deduction for those items we donated come tax time. To do this, a little housekeeping is necessary.

• First off, to take the deduction, you must itemize your deduction on Schedule A. Your itemized deductions must exceed your standard deduction in order for it to be of greater benefit to you, than your standard deduction.
• The contribution must be made to a qualified organization, not to an individual, political organization or political candidate.
• The cost of games of chance, raffles or bingo cannot be deducted, and if you get merchandise or admission to an event in exchange for your donation you will need to deduct the fair market value of the merchandise or ticket price you received from the donation amount, to determine the dollar amount that can be used as a deduction.
• If you donate stock, it is generally valued at the fair market value.
• The old stuff from your kitchen or your linen closet that you wouldn't give to another family member does not qualify for a deduction. Donated household items and clothing must be in good condition to qualify.
• Written bank records or records from the receiving organization are required and should be retained. It should indicate what the donation was, the date it was made and the dollar amount of the donation. If your donation exceeds $250, the organization needs to indicate whether you received benefits in exchange for your contribution.
• If your total contributed property is greater than $500, IRS form 8283 will be required.
• If the value of your total contributed property is greater than $5000 IRS form 8283 will also be needed and items must be appraised by a qualified appraiser.
• You cannot deduct the time or value of your sevices, however you can deduct the items used while carrying out the charitable service.
• You can also deduct the miles driven to provide charitable deeds or donate products. In 2009, the rate is 14 cents per mile.

So keep doing good, keep good records and watch as your tax liability is whittled away.