No one wants to pay more taxes than they have to, so use these six strategies to lower the size of the check you send Uncle Sam next April:
1. Pay Bills Early
If you itemize, pay bills early to increase your deductions. Pay your January 2014 mortgage payment and your 2014 property taxes in December 2013. If you’re a joint filer and don’t have $12,200 in qualifying expenses ($6,100 for single filers) to make itemizing deductions worthwhile, don’t prepay your expenses. Save your payments until 2014 when you may be able to take the deductions.
Before you make any early payments, use the Internal Revenue Service’s Alternative Minimum Tax (AMT) Assistant to make sure you’re not subject to AMT. If you’re subject to AMT, you can lose some deductions, so you wouldn’t benefit from paying items early.
2. Make Home Energy-Efficiency Upgrades
Pay for home energy-efficiency upgrades before Dec. 31 to take advantage of a federal tax credit for projects like installing insulation and energy-saving furnaces or air conditioners. This tax credit disappears when 2013 ends, so don’t delay.
3. Recycle When You Remodel
When you remodel, do it in a way that keeps intact the fixtures and house parts you remove including cabinets, bathtubs, wood floors, windows and doors. Donate them to a salvage store, like Habitat for Humanity’s Restore to earn a tax deduction.
4. Spend FSA Funds On Home Improvements
Have funds left in your Flexible Spending Accounts (FSA)? You can spend them to make medically necessary home improvements, such as a hand rail in your bathroom. Get a letter from your doctor supporting your medical need for the improvements. Many employers have adopted grace periods giving you until March 15, 2014 to spend your FSA funds.
5. Deduct Property Taxes Paid At Closing
If you bought your home in 2013, check your HUD-1 settlement statement (lines 106 and 107) to see if you reimbursed the sellers for property taxes they paid. You won’t get a 1098 from your lender showing those taxes because you paid them at settlement not from your escrow account.
6. Take The Home Office Deduction
If you have a home office, but haven’t taken the home office deduction because it’s too complicated or you’re worried it would cause you to be audited, go ahead and take it on your 2013 taxes.
Starting this year, you can take a new home office standard deduction of $5 per square foot (up to 300 square feet) if you itemize deductions. You won’t have a home depreciation deduction or later recapture of depreciation for the years you use this simplified option.
Source: Ann Angotti, Coldwell Banker