With the 2011 tax season now in the books, it's time to start thinking about maximizing tax deductions for next year's personal income tax return. It may be surprising to think of the possible projects that could be completed in just a few short months, but taxpayers who itemize have the opportunity to accumulate some substantial deductions this summer.
It is important to understand first that remodeling itself is not generally tax deductible. However, any items or building materials that were purchased for remodel projects more than likely had sales tax applied. New appliances, lumber, cabinets, and countertops can all be quite expensive and sales tax adds up quickly. Once actual sales tax paid is greater than the General Sales Tax deduction allowed by the IRS, it becomes advantageous to find any receipts for significant purchases. Don't forget to add any sales tax paid for new vehicles, boats, and other hobby equipment in the same manner.
Dental or Medical Work
For taxpayers who may have been putting off having surgery or extensive dental work, summer may be the right time to do so since procedures are usually easier to schedule at that time of year. Once medical and/or dental expenses exceed 7.5% of adjusted gross income, it adds on to itemized deductions. This deduction includes qualified medical expenses for the taxpayer, plus expenses of the spouse and any children included on the tax return. These expenses may include co-pays, medical deductibles, prescription medication, glasses, braces, and certain types of insurance premiums.
Clean the Closets
A home reorganization project adds benefit to a filer's personal income tax return as well. Go through closets, garages, basements, and other storage to gather items no longer used or wanted. Catalog them and donate these items to a charitable organization, making sure to obtain a receipt for each donation. Many thrift store organizations provide a chart of deductible values right on their website which can be used to determine how much can be deducted. Donations of goods worth $500 and above may require an extra form, so spread donations across multiple organizations or simply be prepared when making a donation of large items or large quantities.
Take a Class
Educational expenses are subtracted directly off of Adjusted Gross Income, which reduces the income that can be taxed. Keep records of any tuition or fees paid and books purchased for family members on the personal income tax return as those can add to a tax refund or decrease tax liability.
Start a Business
Operations of a small business can be incorporated into a personal income tax return. The first years of running a new business may not be profitable, especially after considering licensing costs, start-up fees, required equipment, inventory and materials. If the business shows a loss after those items are subtracted from any revenue earned, the loss would be captured on the first page of the Form 1040. This reduces taxable income, resulting in lower tax liability.
There are many projects that can be done within the few months of summer which may improve the personal income tax situation for certain filers. For specific rules and details on deductions and itemization, be sure to contact a tax preparation professional.