By Andrew Housser
Resolutions are not just for New Year's. If, at tax time, you found yourself saying, "Next year, I will be better organized," then you need to start taking steps now to ensure a smoother tax filing process in 2014. What's more, April is Financial Literacy Month – the perfect time to improve your financial know-how.
Fortunately, with just a little bit of planning and foresight, next year's tax season can be less headache-inducing. You can start by incorporating these smart tax moves today.
Check withholdings. If you received a large tax refund this year or were surprised by the amount you owed, take a look at the deductions on your W-4 form. Getting back a large sum from the government may seem like a windfall. But it is really an indication that too much is being withheld from your paycheck. In essence, you have allowed the government to hold on to your money interest-free. Your goal should be to break even with the Internal Revenue Service (IRS). To ensure that happens, use the IRS Withholding Calculator and adjust your federal income tax withholding allowances accordingly.
Track charitable donations. Several online programs can help track donations throughout the year. Check out Its Deductible from Intuit (Turbo Tax), or download the iDonatedIt app for noncash charitable donations. You also can check the identify and tax status of any charitable organization at CharityCheck101.
--The IRS requires receipts for any tax-deductible charitable contribution (cash or goods) valued at more than $250. For contributions under $250, it is still a good idea to obtain a receipt. Receipts should include the charitable organization's address and tax identification number.
--For non-cash contributions valued below $250, such as clothing and household goods, keep a record of what you gave. This should include the name and location of the charity, the date the items were donated, a description of the donated property and an estimated value. Some nonprofit organizations, like Goodwill, have online guides to determine the estimated fair market value of donations. Keep a list of the items you gave, and figure the value soon after you give. This will be one less thing to worry about come tax time.
--If you volunteer for a nonprofit organization, you can deduct transportation costs. These costs can include a set amount per mile you put on your car, or the cost of public transportation to and from your volunteer site.
IRS Publication 526 has more information about charitable contributions.
Combine Large Medical Expenses. Effective for the 2013 tax year, medical expenses that exceed 10 percent of adjusted gross income are tax-deductible. This includes the medical expenses of everyone listed on your tax return. Maximize the amount of expenses by grouping large medical expenses as much as possible. Medical deductions that are often overlooked include uninsured medical expenses (orthodontics, eyeglasses and hearing aids), travel expenses for medical treatments, alcohol or drug abuse rehabilitation, laser vision corrective surgery, and the cost of long-term care insurance. Certain weight loss or smoking cessation programs also can be included. In addition, you can deduct expenses for health-related changes to your home, such as adding a wheelchair ramp, installing a chair lift, or purchasing a device that enables a deaf or blind person to make or receive phone calls. Free online services like CakeHealth and Simplee can make it easier to track medical expenses. IRS Publication 502 has more information about tax-deductible medical expenses.
Devise a tax organization system. Designate a place such as a filing cabinet, file box or expandable organizer to store important tax documents throughout the year. Create designated spots for receipts and files for income, medical expenses, charitable donations, investments, business deductions, mortgage statements, student loans, childcare expenses and anything else that applies to your personal tax scenario. IRS publication 552 provides additional information about the documents you need to keep and how long you should keep them.
The key to a stress-free tax experience is to get in the habit of dealing with and filing tax documents and receipts on a regular basis. When tax time rolls around next year, knowing that all of your documents are easily accessible will help make tax preparation faster and less stressful.
Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.