It's December 1. December. The last month of the year. How the heck did that happen!?! It hasn't even gotten good and cold yet here in Central Texas.
OK. I've got my calendar and weather rant under control. But my urgency about how quickly 2016 is passing remains. That means we're rapidly running out of time -- check the countdown clock there in the right hand column of the ol' blog -- to make tax-saving moves.
The good news is that the tax code is a veritable bag stuffed with tax-saving goodies, one that rivals the sack Santa lugs around on Dec. 24. And the better news is that while Old St. Nick just has one night to make his rounds, we've got 31 or so days to make some tax moves to ensure that this year's tax bill is as low as possible.
Let's get to it!
Time for itemizers to bunch: Most people claim the standard deduction. But those of us who itemize need to do some extra tax work this final month of the year. A couple of deduction areas on Schedule A require that we have expenses that exceed a certain percentage of our adjusted gross income (AGI).
A bunching strategy can help you meet these thresholds. This basically is moving expenses from one tax year into another to get the tax benefit in a particular year.
The first to consider, mainly because it's first on Schedule A, is medical expenses. This year, all of us younger than 65 must have qualifying medical and dental costs that exceed 10 percent of our AGI in order to claim them as itemized deductions. Folks age 65 or older still get to claim costs in excess of 7.5 percent of their AGI, but this is the last year for that.
Whatever your percentage target, look at what you've spent that can be claimed here and how close (or far) you are from that threshold. Then see what medical treatments you've planned or would like to have done. If you're close to your threshold, schedule those doctor, dentist, optometrist et al appointments ASAP -- and double check other deductible medical costs -- to get over the tax claim amount.
There's also the miscellaneous deductions section of Schedule A. The section is most often used to claim unreimbursed work related expenses, as well as the cost of looking for a new job. But before you can claim these expenditures as tax deductions, they must be more than 2 percent of your AGI. That threshold applies to every taxpayer of every age.
Give, give, give: Yeah, it's a cliché, but it's the season for giving. But don't limit it to just family and friends. Gifts to your favorite charity can pay off at tax time, again if you itemize and follow all the other contribution tax rules.
Cash gifts are always welcome, but don't overlook more out-of-the ordinary charitable donations. These include such things as appreciated stock, household goods, vehicles, and materials you bought or miles you drove in service of your favorite charity.
Older taxpayers get an added donation option. They can roll their annual required minimum distribution (RMD) amount directly to their IRS-approved charity of their choice. That way they meet the RMD distribution requirements, which can be quite costly if not followed, and help out others. This option now is a permanent part of the tax code thanks to last year's Protecting Americans from Tax Hikes, or PATH, Act.
Buy a car to bulk up sales tax write-off: 'Tis the season for so many things, including a lot of shopping. If you’re a fellow Texan or live in one of the six other states that don't tax wage income, the state and local sales taxes you pay could help at tax time as an itemized deduction.
Heck, even if you do pay income taxes, if your rate is low, you might be better off claiming your sales taxes on Schedule A.
You don't really need to hang on to most sales receipts. The IRS provides tables in the Schedule A instructions that give you an average amount for each state based on your income level and number exemptions that you claim. You also can use the tax agency's online sales tax deduction calculator.
And if a new, or new to you, vehicle is on your Christmas shopping list, it can help cut your federal tax bill even more. The general sales tax paid on this and other large purchases, (such as boats and motor homes, are not factored into the IRS tables. You do need to keep this receipt so you can add that amount to your overall sales tax deduction amount.
Boost your nest egg: If you have an IRA, either a traditional retirement arrangement or a Roth, give yourself a gift by putting some cash into it this month. If it's a traditional IRA, you might be able to deduct some or all of your contributions on your taxes.
But the sooner you contribute, the sooner your money starts earning for your post-work years. The power of compounding is impressive, so take advantage of it.
Even better, you don't have to itemize (finally!) to claim the IRA contribution write-off. It's one of the above-the-line deductions found on Form 1040 and to a lesser extent on 1040A.
More tax move goodies: If you've got all your holiday preparation under control and have some spare time, you can find more December Tax Moves in the ol' blog's right hand column, under that ticking countdown clock.
Think of them as stocking stuffers. I hope that at least a few fit your tax and financial needs.
Then sit back and enjoy the season! It really is the most wonderful time of the year, tax and otherwise.