Monday, October 29, 2012

Taxmageddon, part 3

Even with all the tax increases scheduled for 2013, there are still some ways you can increase your take-home pay.  Listed below are several income avenues the IRS can not touch.  Please remember to check with your tax accountant regarding the detailed qualifications of these "tax free" sources.

Tip #18:  Municipal Bonds.  Municipal bond interest is federal tax-free.  The tax-free benefit increases the higher your income, BUT caution must be taken to ensure the underlying municipality is not in dire financial condition.

Tip #19:  Pay for health insurance premiums with pre-tax income.  For now (until 2014), most health insurance premiums are tax-free.  This is scheduled to change in 2014 to help pay for the the Affordable Care Act, but for now make sure you are using pre-tax dollars to pay for these premiums.

Tip #20:  ROTH IRA and ROTH 401(k).  While amounts contributed to these retirement savings accounts are taxed, any earnings made on these contributions are federal tax-free as long as the holding period and distribution rules are followed.  Most agree that today's tax rates are lower than those projected for the future, especially 20+ years in the future.

Tip #21:  Health Related Spending Accounts.  Contributions and earnings in health related spending accounts are tax-free as long as the funds in the account are used to pay for qualified health care expenses.

Tip #22:  Car Pooling.  While commuting expenses are not generally deductible, any reimbursement of commuting expenses by fellow passengers is not reportable as income.

Tip #23:  Downsize Your Home.  Up to $250,000 ($500,000 for married filing jointly) of capital gains on the sale of your principal residence can be tax-free.

Tip #24:  Certain Employer Compensation.  In addition to current health care premiums (beginning in 2014 your health care benefits will be taxed as income), below are a few employee benefits that are not taxable.  All have limits, but every tax-free dollar is more money in your pocket - airline miles earned on business credit card use; certain employer provided education assistance; qualified adoption expense reimbursement; up to $50,000 in employer paid term life insurance; flex spending accounts for dependent care and health care; commuting expense benefits for parking and mass transit commuting.

Are you taking advantage of all your federal tax-free income opportunities?

Are you overlooking or under-reporting your your charitable donations?  Here's a few tips to help ensure you are reporting all your deductible charitable giving.

Tip #25:  Research the Charity.  Make sure the charity you donate to is a qualified non-profit organization.  The IRS has revoked the non-profit status from thousands of organizations for failure to file the proper documentation.  Ensure your donations are allowed by asking the organization to confirm their non-profit status.  You may also confirm this on-line through the IRS at

Tip #26:  Receipts and acknowledgements.  Although there are many different tax rules governing this, the basics include a receipt and donation acknowledgement from the charitable organization.  Other documentation may be required, but without the receipt and proper gift acknowledgement you will not be able to claim the deduction.  Not sure if you'll receive a gift confirmation from the charity?  Limit your donation check to less than $250.00, then use your cancelled check as a receipt.

Tip #27:  Use caution when donating a vehicle.  If the vehicle you donate is not used for the business of the organization or for training others and they simply re-sell it, your donation is limited to what they receive for it and not the usually much higher fair market value.

Tip #28:  Non-cash donations.  Keeping track of non-cash donations, such as clothing & household goods, is one of the most overlooked deductions.  Keep a paper trail for each donation, include the quality of the item and take a photo of the goods.  Only items in good or better condition can be donated.

Tip #29:  Charitable mileage.  You may deduct 14 cents per mile while driving for charitable activities.  Charitable driving miles can add up to a sizable donation.

Tip #30:  DO NOT donate cash.  Rule changes make it very difficult to claim a cash donation deduction.  So resist the urge to place cash in a collection basket; write a check so you will have a paper trail.

Tip #31:  Donating appreciated stock.  If handled correctly you can use the higher value as a donation deduction without paying taxes on the appreciated value of the stock.

Remember deducting charitable tax donations on your federal taxes will lower your tax bill thus, putting more of that hard earned income in your pocket.

Again, please discuss these tax tips with your tax accountant to make sure you follow all IRS rules and maximize your allowable deductions.

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Thank you for taking time to read my blog and leave a comment. I try my best to respond to each one. God Bless You, Mrs.B