This post is part of a mid year review and tune up series. The first post of this series was It’s Christmas time. The final topic in this series will be about asset allocation review.
You are done with the headache of taxes and are ready to take a long break. 
Not think about taxes until next year. But if you think about taxes only during tax season you might be missing a lot of tax savings. A lot of people either avoid taking a legitimate deduction because they never bothered to keep the receipts required or didn’t even know they were eligible to take that deduction in the first place. You might have the best accountant who knows every possible deduction, but unless you keep your receipts you can’t take a deduction. Why pay more when you don’t have to? Isn’t that just throwing money away? Its mid year now, a good time to review your tax situation and make sure you are on track to take all the deductions you possibly can. Here is a quick checklist of things to go through now. Doing little things every now and then will save a lot of time and money come tax season.
Adjust your withholding
If you got a large refund based on last year’s tax return, you should consider adjusting your withholding and direct all the extra money into a high yield savings account. Use the IRS withholding calculator to figure out what the right amount to withhold is, you don’t want to withhold too much or too little. Use the results from the calculator to adjust your withholding. All you have to do is fill out a new W4 form.
Save your receipts
Use this list to refresh your memory on what all receipts you need to keep. I will write another post with a list of deductions you might be eligible for closer to the tax time. For now, the more important thing is to collect and organize receipts that will help you take those deductions. No receipts, no deductions. I will start with a timely one -
- Summer camp receipt (yes you might be able to deduct part of the summer camp expenses) : Make sure you get the camp provider’s name, address, telephone number and tax ID. Note down this information on a sheet of paper and file it away for tax season along with the receipt of payment.
- Business expenses : Stash away any business related expenses along with a short note about the purchase, if it is not obvious. If you are eligible for reimbursement, don’t forget to file the expense report. Reimbursement is always a better option than taking a deduction. If it is a dinner receipt, make sure to note down who was in the dinner group and what the purpose was. Keep any and every receipt that is related to your business, including any subscription fees, professional membership dues, postage, hosting fees, laundry/dry cleaning fees incurred while traveling and many more.
- Education related expenses : There are three ways to deduct/save with education related expenses. Tuition and fee deduction, Hope or lifetime learning credit or as a business expense (if it is a work related education expense). So save all the education related expense receipts.
- Home improvement : Some home improvements are deductible (or eligible for a tax credit) immediately in your tax returns, like home energy improvement. Other improvements/repairs are not deductible but they add to the tax basis of your property when you sell your home, so keep those receipts.
- Home office deductions : If you use part of your home as an office, keep all the related receipts. Utilities including a business phone line, internet charges, fax lines are fully deductible. If you use say 10% of your home as your office, 10% of your regular power, homeowners insurance and HOA fees might also be deductible.
- Charitable contributions : Any cash contribution, if you have the receipt, is deductible. Non-cash contributions are also deductible if you have the receipt. Make sure to have an itemized list of what you donated along with this receipt and file it away. If your non-cash contribution is worth a lot, get it appraised and deduct the appraised value (yes, the appraisal fee is deductible too). For easier tracking I use It’s deductible from Turbotax, its free and automatically gets a fair market value of all the items you donate. If you prefer it to do it by hand, here is the Salvation army’s valuation guide. If you made some dishes for a food drive for a charity, you can deduct the cost of the ingredients (but not any money for your time). For convenience buy the ingredients separately and keep the grocery bill.
- Medical expenses : Insurance premium, uninsured medical treatments, doctor prescribed capital expenses (installing wheelchair ramps or grading the ground to provide easier access to the residence), laser eye correction… a lot of medical expenses are deductible.
- Child care expenses : Day care receipt (along with their tax id). If you use a private baby sitter, their name and SSN.
- Investment and tax related expenses : Including safe deposit box fees. If you paid a tax preparer for last year’s taxes, keep that receipt. Certain investment related fees like the service charges you paid for the dividend reinvestment plans or fees for software/online services you use to manage your investment. Even the subscriptions for financial publications you get for investment counsel might be tax deductible.
- Deductible taxes : State, local or foreign taxes, personal property taxes, sales tax, 50% of self employment taxes, real estate taxes and part of motor vehicle taxes, are all eligible deductions.
- Job search expenses (in your present occupation) : Resume preparation cost, resume paper, printing cost, if you attended a career fair that had a registration fee, hold onto that receipt. If you went to an interview but were not reimbursed for that cost, you can deduct the transportation and lodging expenses.
- Moving expenses : If you moved to start your new job and you passed the time and distance test, you can deduct reasonable expenses of moving your household goods and personal effects to your new home. You can also deduct the expenses of traveling to your new home, including your lodging expenses.
- Student loan and home loan : I think everyone knows about these deduction, but it doesn’t hurt to make sure you do have all the necessary receipts.
- Sales tax: This was mentioned under the deductible taxes, but it deserves its own mention esp. for people living in states that don’t have state income tax or if you made a large enough purchase (car, boat or airplane!). Play with both the state income tax and the sales tax to see which gives the maximum deduction. To do this – yes, save the receipts.
- Transportation expenses : I have this separately because they are most often overlooked. These expenses can go along with the charitable or medical or business expenses. If you drive for your business you can deduct the standard mileage expense or the actual expense. If you drive to volunteer, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you are a volunteer. If you drive to your doctor/hospital, track those miles. If you have 2 jobs, the miles you drive from your first job to the second, is tax deductible. Miles are worth 50c (business)/16.5c (moving or medical)/14c (charity) depending on the purpose. Don’t forget parking and tolls.
- Hobby expenses: You can deduct your hobby expenses up to the amount of hobby income.
Check on your tax deferred contributions
This is a good time to check if you are on track for contributing as much as you can towards your 401k/IRA/403b/whatever your retirement vehicle is. Try to increase them a little (1-2%) every quarter or 6 months until you get to the maximum amount you are allowed to contribute or the maximum you can afford to contribute without cutting the essentials.
Categorize and save the receipts (along with a short description, if needed) now. It won’t take long as you will deal with just 1-2 receipts at a time. I have an envelope for each of the above categories. I either write the description at the back of the receipt or just stick a PostIt note to the receipt and drop it into the appropriate envelope. I have signed up for shoeboxed.com to help me transfer these online. So far it looks very useful. I will probably do a write up on shoeboxed after I use it for sometime. How do you organize your receipts? Did I miss anything?
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