In today’s “Money Mondays” segment, Mellody Hobson gets you ready for tax season.
I don’t mean to bring people down on this Monday morning, but it is time to start thinking about the April 15. Some important changes took place last year, so it is possible that your taxes could be different from years past. And there are some good deductions that you might be able to take advantage of! Beyond the changes though, it is always important to prepare for your taxes as early as possible, and to get organized for this year, and for years past. You never know when the tax man might want to dig a little deeper! And to get organized, you have to know what is important.
What are some changes we might see, or some opportunities we can take advantage of?
There are some good things and some bad things this year. First the bad: If you are going to try to deduct medical expenses incurred in 2013, it will be more difficult. Previously, you could deduct medical expenses if they exceeded 7.5% of your adjusted gross income. That number is now 10%. So, if you or a family member were in the hospital last year, you might have a harder time taking that off your tax bill. Also, if you are in a higher income brackets, you will be potentially be paying more in income taxes and Medicare withholding.
Now for the good! If you are a parent or student paying for school, check out the American Opportunity Credit which can give up to $2,500 per student for tuition and fees, plus extra deductions for loan interest and tuition-related expenses. This is an extension for 2014, so it is a huge opportunity to save some money in taxes for one more year. Also, if you’re a teacher, you can write-off up to $250 in out-of-pocket expenses for books and other school supplies. A recent survey showed that teachers spend $485 out-of-pocket on school supplies, so that deduction extension will likely be welcome.
Finally, if you made energy efficient improvements for your home, anything from installing an energy-saving heater to more efficient windows, you can qualify for an energy credit of 10 percent – though the lifetime maximum is $500. The deductions vary by improvement, so be careful, but it’s definitely something to keep in mind!
What documents should I be saving?
First, retain a paper copy or receipt of any tax-relevant personal financial exchange. This means receipts for any deductions – those new energy-saving window, the donations you made to Goodwill, the tuition bills – along with a note about why it justifies a deduction. Other relevant documents are your W2, pay stubs, copies of living expenses. If the purchase was a business tax-deductible expense, the same rules apply. Record the expense and why it justifies the deduction. Store this information with or on the receipts.