5 Things to Do Before Dec. 31 to Reap Tax Benefits
Your holiday schedule may already be hectic, especially for those who are caring for their parents during this special time of year.
Tax season isn't far away, though, and by squeezing in some time to take these steps during the holidays, the savings could be an extra gift to you in 2014. Making contributions to 401(k) or spending all the money in your flexible spending account are common steps to reduce a tax bill, but here's five more last-minute deductions and steps caregivers can take before the New Year countdown begins.
1. Make a choice: Standard or itemized deductions?
To decide, look at what you will be deducting from your taxes and what else you might be able to deduct. If the itemized deductions for qualifying expenses will be more than a standard deduction ($6,200 if you are single or $12,400 for those married filing a joint return), it could result in savings. If you're able to itemize in 2014, there are many opportunities to take advantage of before year-end. This same step needs to be taken if you are responsible for your parents' finances and their tax returns.
2. Give it away.
Continue the holiday spirit by giving to charity. If your parents have old items or are planning on moving in with you or a nursing home, now's the time to donate whatever needs to be downsized, for a tax benefit.
Taking yours or their unused furniture, clothing, toys and other items to Goodwill, The Salvation Army or another organization will allow you to take a charitable deduction (be sure to get a receipt). You will be able to deduct the item's current fair market value, or what someone would buy it for in a yard sale, according to H&R Block.
3. Present the cash now.
If you or your parents make annual cash contributions or have the financial ability to make another contribution to a charity in 2014, mail it before year-end, not after Jan. 1. You'll get to write off the donation on your 2014 taxes.
Another option is that you or your parents can give up to $14,000 to any individual without having to pay the gift tax. The recipients have to receive the gift and cash or deposit the check before Dec. 31.
4. Double up the house payment.
If you are itemizing deductions in 2014, see if there's room in the budget to make the January mortgage payment early. Mailing it before Dec. 31 will give you another deduction for your interest portion of the mortgage in the current tax year, says Mary Beth Saylor, a CPA and tax principal with Windham Brannon, an Atlanta-based accounting firm. If your parents are still paying a mortgage, you can do the same for them, too, if their deductions are itemized.
5. Make medical expenses work for you.
December is such an important time to review medical expenses. Review how much you have paid for your parents' out-of-pocket medical expenses as well as your expenses and that of your spouse or children throughout the year. If you're close, you may be able to bunch some expenses before Dec. 31 to put you over the threshold to claim them as dependents on your tax return. They have to first pass these tests:
- Relationship: They must be a qualifying relative of yours, but do not have to live with you.
- Support: You must be paying more than half their expenses.
- Income: Their gross income is less than $3,950 (excluding Social Security, disability or tax-exempt income).
More on claiming an elderly parent as a dependent
If you meet the support test and relationship tests, you can still claim their medical costs, says Saylor, who cares for her parents, ages 75 and 79.
You can deduct out-of-pocket medical expenses if they exceed 10 percent of your adjusted gross income (7.5 percent if you or your spouse was 65 or older in 2014). If you're close to the 10 percent, see if there are procedures or appointments that still could be done in 2014. By paying any outstanding hospital or doctor's bills now, you can include them on your 2014 return as an expense with tax benefits.
List of medical expenses that can be deducted