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Will You Be Ready?

This is a good time for you to get ready for your 2013 tax return. I've spoken to several people filing their returns who indicated they had education, medical, or other expenses but they failed to keep track of them. Now is the time to make a tax resolution and begin tracking expenses that could eventually lower your tax liability and increase your refund.

It's not necessary to categorize every thing you pay for but if you know what expense might lead to a deduction or credit, you can track those items. Those expenses fall into one of several groups. Itemized deductions is the one that is most considered by taxpayers with high expenses during the year. Itemized deductions (claimed on Schedule A) can be claimed instead of the standard deduction and include Medical expenses, several types of taxes, mortgage and investment interest, charitable contributions, and certain miscellanous expenses.

Medical

Medical expenses, unlike other items, are subject to 7.5% of your adjusted gross income, so they do not become a part of the formula until you have paid that 7.5%. However, medical expenses are not limited to doctor bills. Medical insurance, dental expenses, drug insurance and expenses, and hospital stays are all part of the medical expenses. If you are drawing social security, the amount withheld to pay for Medicare is also included.

Taxes

Property taxes and (currently) sales taxes paid are part of your itemized deductions. For Texas and other states without an income tax, sales taxes paid can be claimed, and you don't have to keep track of all your purchases. You can use the Sales Tax tables based on the state you live in.

Interest

Interest you paid is also deductible, but it generally only includes home mortgage interest and investment interest. Credit card interest is not deductible. Consider that when you decide what items to pay cash for and what to get a loan for.

Donations

Charitable contributions to qualified organizations such as churches are deductable but there isn't a deduction specifically for donations. You will probably need more than donations to take itemized deduction. I've seen many clients only bring  in their charitable contributions with their tax documents, but $3,000 of contributions will do no good on your tax return unless you have enough other itemized deductions to bring the total over your standard deduction.

Other

Though not often claimed, a deduction is available for casualty and theft losses. Additionally, there is a variety of miscellaneous deductions, some of which are subject to a 2% of AGI floor. Get a copy of Schedule A and make a note of the items on the form. Both the form and the instructions are available for download from the IRS website. Then during the year you may want to keep in touch with your tax preparer or follow changes in the tax law.

If you want to consider itemizing your deductions for 2013, review your current expenses and estimate what your itemized deductions would be for next year. Then, compare them with your standard deduction. If they are higher you should track your expenses carefully. Taxpayers that are buying their own home or make large amounts of charitable contributions are more likely to be able to itemize. If your itemized expenses are much less than your standard deduction you may find it to be a waste of time.Also, keep it in perspective. 15% of the extra deduction. If itemized deduction is 200 more than standard, you only get an extra $30.

Other Deductions and Credits

There is more to planning for 2013 than tracking itemized deductions. Other deductions are also available as well as a general set of credits. Some deductions can be taken without having to itemize your deductions. One prime example is the interest paid on school loans.

Credits are amounts that reduce your tax directly. A credit is a direct reduction in your tax bill. If the credit is $200, your tax bill is reduced by that much. If the credit is nonrefundable the credit reduces your tax by the amount of the credit over your tax due. If the credit is refundable then the credit adds to your refund, whether you owe tax or not. Some examples of credits are the American Opportunity Credit (AOC) and the Earned Income Credit.

2013 - Plan For It

Not only is it nice to have your papers in order for next year's IRS ritual tax return, knowing what will effect your return next year may help you make plans for the year. You might want to do some remodeling if you know it will generate a deduction based on sales taxes paid, or some sort of energy credit. Knowing that you will get back all or most of what you spend on education could be the incentive you need to work on your degree. And knowing how other expenses will affect your itemized deductions can help you decide whether to make those payments (i.e. property taxes) at the end of this year or early next year. You might decide to buy a car at the year-end sale instead of waiting until 2014.