Doing your taxes is never fun. The potential of having to pay even more money than has already come out of your paycheck looms over your every move. The thought of missed tax deductions, or unused tax tricks makes you constantly wonder if you could have done better on your taxes. Searching for receipts and other records takes time and adds to the stress. Add to that the threat of a tax audit if you mess up, and it’s no wonder people spend hours stressing out of their taxes.
How To Do Your Taxes Faster
There are some tax tricks you can use to speed up doing your taxes. Mostly, it comes down to knowing when and where it is worthwhile to spend your time, and where you can just keep plunging ahead and filling out those IRS forms. Remember, not everyone qualifies for everything. In fact, most people don’t qualify for a lot of the tax deductions and credits out there. Unfortunately, some personal finance publications and websites could do a better job of letting you taxpayers know when they just won’t qualify for that really great “frequently missed tax deduction.”
High Tax Deduction Floors
One of the ways to waste a lot of time doing your taxes is hunting down records and receipts for tax deductions that you aren’t going to get anyway thanks to high minimum requirements.
Money websites and financial publications love to flog deducting medical expenses as an oh-so-clever tax deduction. That’s because most people have medical expenses, and many of them don’t know that they CAN be deductible. So, they read an article that says to find those medical records and deduct the expenses, and they think, “Wow! What great advice.”
Unfortunately, after spending all of that time coming up with those medical records, and feeding them into TurboTax or TaxCut or handing them off to an accountant, they get no deduction at all!
Medical expenses are only deductible if they exceed 7.5 percent of your adjusted gross income. Even then, only the amount OVER 7.5 percent can be deducted. So, if your AGI ends up being $60,000, then you can only deduct the amount you spent above $3,750. In other words, it takes more than a few doctor visits and a handful of prescriptions to qualify for this tax deduction. Remember, only your expenses are deductible, so you can’t deduct the part your insurance company paid. And, if your premiums are paid pre-tax (a common benefit with corporate health insurance) they don’t count.
On the other hand, if you pay out of your own pocket for Long-Term Care Insurance, or for a Medicare supplement insurance plan, you may very well meet the floor without much in the way of additional expenses.
Before you start hunting down records, do a quick calculation like the one above to find out what your medical tax deduction floor is. Then, think back over the year and do some quick counting to see if you’ll even come close. Remember, the higher your income, the less likely you’ll meet the floor without some sort of major health issue during the year.
Some health insurance companies allow you to see your records online. Try and generate a report for the tax year and see how much is listed as, “Your Responsibility,” or “Your co-pay.” If the total doesn’t come near your medical bills deduction floor, move on. On the other hand, if you are close, then start filling out those forms. Be sure to print out the report and deduct everything on it. Print copies of your credit card statements showing you paid along with your receipts and deduct everything listed.
Miscellaneous Deductions
Another set of deductions that take a lot of record keeping, but don’t always add up to an actual tax deduction for a lot of taxpayers are those that fall under the IRS miscellaneous deduction category. These deductions only count if the total amount exceeds two percent of your adjusted gross income.
The deductions often written about here include job hunting expenses, moving expenses and expenses related to your job.
Again, some quick math is in order. If you have some professional dues, a little bit of unreimbursed mileage deduction, and few hundred bucks of job hunting expenses, it isn’t going to add up unless your income is pretty low.
A taxpayers with an AGI of just $50,000 will need $1,000 in expenses to qualify. Again, only the amount over 2 percent is deductible, so if you have $1,100 worth of expenses, you get $100 deduction, not a $1,100 deduction.
The same rule above applies. Do some quick math in your head. If you hired a moving company to move cross-country and flew to some job interviews, then you will almost certainly qualify for the deduction. On the other hand, if you mailed a handful of resumes, and paid $200 for your trade association membership, it won’t add up. Union dues DO count for this category, so make sure you include them. That might get you to the minimum.
Miscellaneous Tax Deduction List
All of the following can be tax deductible as miscellaneous expenses, however, remember the 2% floor. If your AGI hits six figures, you’ll need at least $2,000 worth of these expenses to deduct them at all.
- Unreimbursed employee expenses (parking, fees, dues, tools) – Must be required for job and not reimbursed.
- Job Hunting Expenses – Must be for job in same field.
- Job Training – Only if required to keep your job or salary. Continuing education required to maintain necessary certifications counts. Learning a new language, for example, usually does not, even if it makes you “better” at your job.
- Tax Preparation Fees – Unless you are shelling out for an accountant, this one probably won’t get you there, but you might be able to throw it on top if you’ve already hit the two percent floor. Tax software counts, so do tax preparers and even the fees you pay if you pay your taxes with a credit card.