Last Minute Tax Filing Tips Missed by Many
Kevin VanDyke of Bloomfield Hills Financial lays out some more deductions you and your accountant won't want to miss.
Editor's Note: This is the last of a two-part series identifying some key areas to remember before you file that tax return for good. Miss
Tax day is April 17 and Kevin VanDyke, president of Bloomfield Hills Financial, with the help of Kiplinger's outlined these areas to keep in mind when filing this year.
- Dividend Reinvestment- Most investors have mutual-fund dividends automatically invested in extra shares, remember that each reinvestment increases your "tax basis" in the fund. That, in turn, reduces the taxable capital gain(or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends -- once when they are paid out and immediately reinvested in more shares and later when they're included in the proceeds of the sale. Don't make that costly mistake. If you’re not sure what your basis is, ask the fund for help.
- Members of the National Guard or military reserve deductions for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight.
If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills.
- Medicare write - off Folks who continue to run their own businesses after qualifying for Medicare can deduct the premiums they pay for Medicare Part B and Medicare Part D and the cost of supplemental Medicare (medigap) policies. This deduction is available whether or not you itemize and is not subject the 7.5% of AGI test that applies to itemized medical expenses. One caveat: You can't claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer (if you have a job as well as your business) or your spouse's employer.
- Childcare credit - A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account – which allows you to pay for the child care with pre-tax dollars – that might be a better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only expenses for the care of children under age 13 count.)You can't double dip.
- State tax withheld deduction - Did you owe tax when you filed your 2010 state income tax return in the spring of 2011? Then, for goodness' sake, remember to include that amount in your state-tax deduction on your 2011 federal return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
- Deducting mortgage points when selling or refinancing - When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. That means you can deduct 1/30th of the points a year if it's a 30-year mortgage. That's $33 a year for each $1,000 of points you paid -- not much, maybe, but don't throw it away.
Even more important, in the year you pay off the loan -- because you sell the house or refinance again -- you get to deduct all as-yet-undeducted points.