Tax time tips
If you’re like me, you have a folder filled with rumpled receipts saved for tax time. Many of these scraps of paper are covered in the chicken scratch of hastily recorded charitable donations. I’m talking about the stuff—the garbage bag of kids clothes or the unwanted rocking chair that you finally removed from the basement.
Then tax season comes and you’re met with a dilemma: How much of a tax deduction can you claim for your old items? Unfortunately, unless you’re donating a car, most charities don’t assess a value for your used items. It’s up to you.
In general, it’s safe to use the yard sale or Craigslist price for your items, which have to be in good condition. That’s right, no tax break for a bag of holey underwear. But if you want more guidance than that, here are three resources.
The book, Money For Your Used Clothing (mfyuc.com) promises to knock at least $250 off of your tax bill, or you’ll be refunded the $25 that the guide cost. Register your book online and they’ll guarantee you won’t be audited because of the values you used from the book.
Intuit, the maker of TurboTax, has a free program you can use called “It’s Deductible.” It’s fairly easy to use and if you’re organized, you can input donations as you make them year-round. Then if you complete your taxes using TurboTax, your values are painlessly inputted into the software. Tax Act, another tax program, has a similar online tool called Donation Assistant.
Of course, in the “there’s an app for that” era, you can input the value of your tax donations using your iPhone. There are a handful of applications that estimate your donation values. I downloaded the ap, idonatedit, but admit that I fell back to my scrap paper method for disorganized donating mid-year. The nice thing about these apps, which range from free to $2.99, is that you can take a photo of the donated goods, just in case the IRS questions your valuations.
Once the alchemy around charitable donations is complete, taxes are a breeze for many families. Here are a few other tidbits to keep in mind:
Some school costs and supplies can be counted toward Minnesota’s K-12 Education Credit and Subtraction. It’s a nifty tax break for families, although you must keep good records and there are lots of nuanced rules to follow. Visit: taxes.state.mn.us and search for “income tax fact sheet 8.”
If you work outside of the home, think about taking advantage of a dependent care account, where you can have your employer take $5,000 out of your paycheck over the course of the year before tax to pay for any qualified childcare expenses. As any full time working parent knows, child care tends to cost way more than that, but every little break helps.
Getting a refund? Why not stuff it in a Roth IRA for 2011. That’s right: 2011. You have until April 15 to make a contribution to a Roth IRA retirement plan for last year. It’s confusing, but convenient, especially for families who received a larger tax refund than anticipated. The maximum you can invest is $5,000 annually and there are some income restrictions. Head to irs.gov to learn more.
If your refund was sizable, consider playing with your tax withholding. I know some people are big fans of the big refund as a forced savings tool, and honestly, with interest rates so low, maybe having Uncle Sam hold onto your money all year isn’t such a bad move. But if you are disciplined, why not adjust your tax withholding so you have more control? Most tax software programs have withholding calculators, or you can find one at irs.gov.
Finally, if you’re wondering when you can throw out those old tax returns, the Minnesota Society of Certified Public Accountants (mncpa.org) has a handy cheat sheet on which paperwork to keep and which to toss.
Generally, keep tax-related documents and copies of your returns for at least four years, because Minnesota has 3.5 years to start an audit.
Kara McGuire is a personal finance writer and a St. Paul mother
of three. Send comments, questions and story ideas to