Why You Should Do Your Taxes Early

You may think of April as the best time to do your taxes, but in reality the ideal time to do your taxes is before the end of this year!  Even if you don’t know exact final numbers, going with what you do know and plugging in those numbers quickly can save you a lot of money.

This applies mostly to folks who do not take the standard deduction but itemize their deductions. If that is Greek to you, do you own a house and have mortgage interest, plus tithe and other donations?  Then this might be you.

Why do you want to stop what you are doing and do a dry run on your taxes?  Because you still have a few days to make adjustments that could save you tax money!  Don’t believe me? Read on to see why you should do your taxes early.

Why You Should Do Your Taxes Early

Small Business Owners—Section 179 Deduction

If you own your own business, this is the one deduction that will save you a chunk of money.  You can buy equipment and deduct it faster than normal depreciation allows—up to $1,050,000 worth of equipment. I know it’s probably only .001% of us that would need that much, but even if you have a small business out of your house, this can be a big savings. Business taxes are crazy, so any savings you can get is huge. For small business owners this means that you can buy a new computer, printer, or even a car and save up to 55% of the price!  The amount you save depends on your tax bracket.  Purchases for this deduction must be made by 12/31.

On a side note, if you are a small business owner that has an accountant and they have never mentioned this deduction, it’s time to get a new accountant.  Every business has equipment of some sorts and should be using this deduction.

Increase Donations

For anyone that itemizes their deductions, you want to make sure you can get all the donations counted by 12/31.  If you are going to end up owning even a tiny bit on your taxes, wouldn’t you like to see now that if you donated that old TV and laptop to Goodwill that you would end up not owing any taxes? I would much rather make an extra donation to the church of $500 than pay the same amount in taxes.

Medical Needs

To claim medical expenses on your taxes is now really hard.  You can only deduct expenses that were over 7.5% off your adjusted gross income (AGI).  For ease of math and understanding, let’s say you make $40,000 .That means you can’t deduct the first $3,000 in expenses; only what is over that amount. Gather your receipts together now, though, because if you are super close to the threshold, then now might be a great time to see a doctor for something you’ve been putting off. We are cutting it a little close for this one, so tuck this away for next year, too.

Here’s another tip: Don’t forget that mileage to and from medical appointments also counts in.  You can deduct 23¢ per mile traveled for medical reasons.  My family became an expert on this category one year when traveling to and from Atlanta for medical appointments.

If you don’t qualify for expenses, you can still open a health savings account, if your insurance plan qualifies, and put money into it before 12/31. The money that goes into it goes in tax free!

Job-Related Expenses

As long as your employer doesn’t reimburse you for these, you can use the next few days to purchase a few things that are all deductible on your taxes.  If you need them anyway, why not get some savings for them.

Items that may qualify:

• Licenses, regulatory fees, and/or occupational taxes
• Dues to professional groups, unions, or local trade groups
• Education that is related to or required for employment
• Work clothes and uniforms, and possibly upkeep costs
• Subscriptions to professional journals and magazines related to your line of work
• A home office or part of your home used regularly and exclusively for work

I’m an RN, so that means my license renewal, CEUs, scrubs, nursing association dues, and subscriptions to medical magazines are all a deduction. My husband is part of IEEE, so those yearly dues count too. Remember you have to itemize your deductions to claim this, but it can be a nice savings if you do!  The catch is that these all have to be paid for by 12/31, so if you been putting off renewing or getting new scrubs, you have a few more days!

Education Expenses

Have someone in college who is still a dependent on your taxes?  You can claim up to $4,000 in tuition costs on your taxes (the amount is phased out based on your income level, though).  If you are looking at paying tuition in January anyway, go ahead and write the check and mail it now to add it to this year’s taxes. This deduction is available for anyone whether you itemize or not.

Home Energy Star Renovations

There are a few things you can do to your home (or at least purchase the equipment for now) that will qualify for up to 30% back on your taxes. The list is a lot shorter this year than previous years.  One option is solar energy. This could be a great way to save some money now and in the long run!  See all qualifying deductions.

Extra Deductions For Procrastinators

If you decide not to do your taxes early, there are a few deductions that you have until April to get. Even if you don’t do your taxes now, don’t forget about these.  You can make IRA deductions for the previous year up until April 15th.  You can also make contributions to state 529 plans through April 15th.  The 529 plan doesn’t save you on federal taxes but will decrease your state tax liability.

Note: I am not a CPA, nor do I work for the IRS.  Please do not take my word as legal law and seek out any advice needed from a CPA or Tax attorney.  I do have a strange love for doing taxes though…

For more on taxes, see why your taxes aren’t a saving account!