It’s that time of year when you need to check your mail carefully for those IMPORTANT TAX DOCUMENTs.
If you’re like me, you probably toss the envelopes into a (very special) pile. If I’ve stuck with my “get organized” New Year’s resolution, I might toss the envelopes in to a folder labeled “TAXES”.
When you think you have everything, you either
- wait for a free weekend to patiently endure a few hours of mind numbing TurboTax questions OR
- call your tax preparer right away OR
- call your tax preparer on April 14th.
But what about the things that aren’t labelled IMPORTANT TAX DOCUMENTs? My time saving ideas are intended to help you focus on the information and documents that will really make a difference when calculating your income taxes.
INCOME – The IRS already has a pretty good idea of your income. The information on your W-2s, interest and investment income, Social Security and Pension/Retirement income is all sent directly to the IRS by your employer, bank or brokerage firm.
My time saving tip – make sure you report ALL that income on your tax return. If you don’t, you’ll come home one day to a frightening envelope in your mailbox. Why is it frightening? Because the return address says “Internal Revenue Service”. The letter uses words you recognize as English – but you have no idea what it is saying. All you know is that there is a section that says you owe $2.00 in income taxes and $10,000 in interest and penalties. (I exaggerate – slightly.) If you call the IRS for help you’ll get a message telling you that can expect to be on hold for hours (not an exaggeration).
So – save time and aggravation – double check that you have reported all of your income.
EXPENSES – Some expenses can be deducted against your income to make your tax bill lower. Is it really worth chasing down receipts for every medical expense, charitable deduction etc.?
MEDICAL EXPENSES – I imagine that you have noticed that, each year, you are paying more and more out of pocket for medical expenses. Though high, and getting higher, it’s unlikely that your medical expenses are going to be high enough to make a difference on your tax return.
Why? Because they have to be more than 10% of your income to be deductible. If, by chance, your medical expenses are greater than your 10% of your income, only the amount that is GREATER THAN 10% is deductible.
For example, if you make $75,000 per year, your medical expenses must be greater than $7,500 for any of them to be deductible. In this example, if your medical expenses totaled $8,000, only $500 could be deducted against your income.
To further complicate matters, there are other thresholds that need to be met in order to be able to deduct the $500 in the example above.
My objective in preparing this post was to help you save time, not put you to sleep. My next post will explain more about deductions. If you’re interested, you can read it. If you aren’t interested, ignore it or save it for a night when you are having problems falling asleep. You’ll be dreaming of your tax refund in no time!
FINALLY – Please understand that this is general advice. If you are not sure about your specific situation, ask a professional. In other words “This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.”