It’s not too late to cut your 2013 tax bill.? Prior to Dec. 31st:
- ?Increase your 401(k) and 403(b) contributions if you haven’t been contributing at the maximum rate all year.? This year you can put away up to $17,500 ($23,000 if 50 or older) into your 401(k) or 403(b) plan.? If you?re self-employed, consider setting up a Solo 401(k) by 12/31.
- Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven?t had enough taxes withheld during the year and might get hit with an underpayment penalty.
- Consider selling your non-retirement investments that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds), and then can be used to offset up to $3,000 of wages and other income.
- Send in your January 2014 mortgage payment early enough so it will be processed prior to 12/31/13.? By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier.
- Clean out your closets and donate your clothing and household items to a charitable organization since “non-cash” contributions are deductible if you itemize.? Don?t forget to get a receipt. And make sure to make a list of the donated items, including each item?s condition since only donations of clothing and household items in “good condition or better” qualify for a deduction.
- For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year’s return, even if you don’t pay your credit card bill until 2014.? And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.
- Pre-pay your projected state tax shortfall if you’ll be itemizing your deductions and won?t be subject to the alternative minimum tax.
- Pre-pay or pay off your medical bills if your total medical expenses exceed 7.5% of your income and you itemize.
In today’s consumer driven world we live in, almost everyone builds up clutter that never sees the light of day. Why not take this opportunity to clean out your closets, garages, and attics and generate a tax deduction while you’re at it?
Donating these goods can also save you taxes, as long as you itemize your deductions instead of claiming the standard deduction. Just make sure to make a list of what you donated, and somehow come up with the fair value of each donated item.
According to the instructions to the Form 8283 – Non-cash Charitable Contributions:
The FMV of used household items and clothing is usually much lower than when new. A good measure of value might be the price that buyers of these used items actually pay in consignment or thrift shops. You can also review classified ads in the newspaper or on the Internet to see what similar products sell for.
You cannot claim a deduction for clothing or household items you donate after August 17, 2006, unless the clothing or household items are in good used condition or better. However, you can claim a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return.
Publication 526 – Charitable Contributions sheds more light onto this issue:
The fair market value of used household items, such as furniture, appliances, and linens, is usually much lower than the price paid when new. These items may have little or no market value because they are in a worn condition, out of style, or no longer useful. For these reasons, formulas (such as using a percentage of the cost to buy a new replacement item) are not acceptable in determining value.
You should support your valuation with photographs, canceled checks, receipts from your purchase of the items, or other evidence. Magazine or newspaper articles and photographs that describe the items and statements by the recipients of the items are also useful. Do not include any of this evidence with your tax return.
Properly valuing your donated clothing and household rules has become more important in the post August 17, 2006 “Good or Better” world. If you ever get audited, there is a good chance that the IRS will use these new rules as a way to greatly reduce the deduction they will allow you to claim unless you can:
? Substantiate that the donated goods were in good condition or better, and
? Demonstrate how you came up with the Fair Market Value you claimed
To help you put a value on the donated goods, we have created a few different tools based on the published values of used merchandise sold at the thrift shops of the Salvation Army and Goodwill Industries. For starter, check out UDoGood, an iPhone App. Or, download our Non-cash Charitable Donation worksheet in either pdf format or as an Interactive Microsoft Excel Spreadsheet. (To download the Excel Spreadsheet, right click your mouse and hit “Save Target As”, and then choose the directory on your computer where you want this file to sit.)
Simply complete either version of this worksheet, take a few photos of what you are donating, and file along with your tax records, and use this information when completing your Form 8283 next year to attach to your federal income tax return.? Hopefully this information will do the trick if you ever get audited.? While we don’t recommend that you exaggerate the value you claim for the items you’re donating, we do believe you should take the full deduction based on the fair market value of the stuff you gave away.