By Andrew Schwartz, CPA
Spend Some Money:
Certain itemized deductions are only allowable to the extent they exceed a percentage of your income. For medical expenses, the threshold is 7.5% of your Adjusted Gross Income (AGI). For miscellaneous itemized deductions, which include your professional expenses not claimed against independent contractor income on a Schedule C, the threshold is 2% of AGI.
The catch is that you can’t just put an expense to the year you want. Since you are on the cash basis of accounting, the expense is deductible in the year the money was spent or the credit card transaction occurred.
if you think you are on track to exceed either of these thresholds this year, consider “bunching your allowable expenses” into 2012. Beware of the Alternative Minimum Tax, however, which might cause this strategy to backfire.
Give Away Some Money to Charities:
People who itemize can deduct donations made to qualified charitable organizations during the calendar year. The IRS maintains a list of organizations they consider to be legitimate. Now is the time to set a goal for your 2012 contributions, and put yourself on a budget to meet that goal.
For gifts of money, keep track of the amount given. Expect to receive a written acknoeldgement from the charity for gifts over $250 during the year, and make sure to keep that acknowledgement with that year’s tax forms and receipts.
Please be aware that you always have the option of donating appreciated investments to charities. While you get to claim your donation based on the value of the assets donated, you avoid paying any capital gains taxes on the appreciation.
And don’t forget to clean out your closets and donate your clothing and household items to a charitable organization, since “non-cash” contributions are deductible if you itemize. Make sure to get a receipt. And you should make a list of each item donated, along with its condition. Remember, only donations of clothing and household items in “good condition or better” qualify for a deduction. (To track what you donate, download our Non-Cash Contribution Worksheet – Excel Version or the PDF version, or use the App UDoGood.)
Check in tomorrow for the finale “Money – Part IV”