Sorry. We know this is not the best moment for tax talk, at least from all the usual perspectives. Most of us are not accountants or financial professionals. It’s holiday time. Kids are coming home from school. We’re baking and wrapping and gathering. Winter sports and tree-trimming parties beckon. But, alas, all things practical do not disappear just because it’s December. And there’s still time to take some steps, before the 31st, that could reduce a tax bill – always a good thing, especially for those of us caring for elderly parents or relatives. And of course, consult a trusted tax professional for the best advice and guidance in these matters – but be quick. Father Time is headed this way!
This is a short and sweet list, from the Nice side of the ledger:
Make a decision: standard or itemized deductions?
- How to choose? First, look at what you will be deducting from your taxes (or your parent’s taxes, if you are helping them out) and what else could be deducted. Now consider the standard deduction amounts: $5,800 for a single; $11,600 for those who are married and filing jointly. If the total for the itemized deductions for qualifying expenses comes to more than the standard amounts, then itemizing could result in savings. And there are some opportunities to take advantage of right now, before the end of the year, that make itemizing worth the hassle.
Give it away. Really!
- Say your parents are planning to move into that apartment over your garage or are headed for an assisted living facility or nursing home. Since they’re downsizing, they plan to donate what they no longer need for a tax benefit. Haul that furniture and those household goods off to The Salvation Army, Goodwill or other organization that will allow you to take a charitable deduction. Be sure to hang on to any receipts. According to H&R Block, you will be able to deduct the fair market value – or what someone would pay at a yard sale – for any such donations. It can add up pretty fast!
Double up the house payment.
- If you are planning to itemize deductions in 2011, consider making the upcoming January mortgage payment early. Obviously this only works if your budget can stand it, but sending out that payment before the 31st of December will give you another deduction for your interest portion of the mortgage in 2011 (compared with 2012). And if your parents are still making mortgage payments, you can do the same for them if they are itemizing.
Give the cash gift now.
- Suppose you make annual cash contributions to a favorite charity, or you have the funds to add an extra contribution to charity in 2011. Be sure to send it in before the end of December, not after January 1. This will permit you to write off the donation on your 2011 taxes. And you or your parents can give up to $13,000 to any individual without having to pay the gift tax. Again, the recipients of such gifts have to receive and cash or deposit the checks before December 31st.
Work those medical expenses.
- December is the time to review medical expenses. Tomorrow we will go into greater detail about the specific medical expenses that can be written off on your taxes. For now, review how much you have paid for any of your parents’ out-of-pocket medical expenses as well as your own expenses along with those of your spouse and children over the course of the year. You may be able to bunch some expenses before the 31st in order to put you over the magic threshold to claim them as dependents on your return. This can be done by scheduling appointments or necessary procedures before the end of the year for an elderly parent, for example, or paying some outstanding hospital or doctor’s bills now in order to include them on the 2011 return. Here are the tests dependents need to pass:
- Relationship: they do not have to live with you, but they must be a qualifying relative.
- Support: you must be paying more than 50% of their expenses.
- Income: their gross income is less than $3,700 (excluding Social Security, disability or tax-exempt income).