Preparing for Next Year’s Taxes
by Matt Solis
While the beautiful days of winter may be a tax season perk, the real prize comes once you’ve successfully prepared and submitted your tax return. If you’re going to receive a refund this year, congratulations! Now, let’s think about not only how to spend it, but how to spend it to maximize your refund next year. And if you’re not going to receive a refund this year, you may want to consider making some deductible expenditures.
Here are a few ideas:
- Do you own a rental property? Any maintenance you spend on that property can be deducted. Is it time to re-paint or install new floors? Does it need a new water heater or a retaining wall? Deductible. Did you build an in-law unit over your garage? Unfortunately, not deductible—it’s considered an improvement.
- There’s a bright side to spending thousands of dollars on braces for your truculent 12-year-old. If your medical costs in a year exceed 7.5 percent of your adjusted gross income, you can deduct them. Braces, Lasik, all of those co-payments: medical costs can add up, so if they exceed 7.5 percent, make sure to take advantage.
- Do you work from home? Build out your home office and save. You can deduct any construction work you do on your home office. So, if you have to choose between building an in-law unit or a home office, the latter is a better investment tax-wise.
- Do you want to save the planet? Many cities, states, and even, occasionally, the federal government, offer tax credits for making “green” investments such as installing solar panels and driving gas-saving vehicles.
- The words “IRS” and “generous” don’t often go together in a sentence, but the tax code does offer a little gift each year: the costs of tax preparation are deductible. If you pay someone to prepare your taxes, if you purchase software or even if you just submit your taxes by registered mail, keep your receipts. Next year, provided your deductions are higher than your standard deduction, take those tax preparation costs and write them off.
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