Four Tax Resolutions for the New Year

Now is a great time to make resolutions that can reduce your taxes for the coming year. Of course, like other New Year’s resolutions, they are only as good as your ability to keep them. Here are some resolutions that you can benefit from in the new year.

Resolution 1: Take advantage of pretax options. You may be able to pay for certain personal expenses on a pretax basis. This means that the salary you commit to the payment is not taxed. Examples:

• Monthly transit passes
• Dependent care expenses through a flexible spending account
• Medical expenses through a flexible spending account

Resolution 2: Keep needed receipts and other documents. In order to claim certain write-offs, you may be required by the tax law to have proof. As you make purchases, donations, or other expenditures throughout the year, be sure to squirrel away your paperwork in some systematic way. An expandable file folder is useful for this purpose. Examples of receipts to retain:

• Receipts for medical expenses
• Receipts for work-related expenses, such as uniforms and subscriptions to trade magazines
• Written acknowledgments from a charity for a donation of $250 or more; canceled checks or bank statements for smaller gifts

Also save receipts related to any capital improvements you make to your principal residence. While they may not have an impact on your 2011 taxes, they can be helpful in the future. These improvements can be added to the basis of your home and minimize gain when you sell the home.

Resolution 3: Maintain your vehicle mileage records. If you drive your personal car, truck, or van on business, be sure to keep a record of your travel throughout the year. This will enable you to figure the deduction for the business use of your personal vehicle.

The tax law requires that for each trip you record the date, odometer reading, destination, and purpose of the trip. The tax return requires you to say whether you have a written record. You can keep your record on a paper logbook or use an app for this purpose (the app allows you to transfer information to your computer and create a permanent record).

Resolution 4: Keep up on tax developments. The tax law is continually changing, with developments from Congress, the courts, and the IRS every year. For example, this year, expect to see court decisions on:

• Health care mandates. One district court has already decided that the requirement imposed on individuals to obtain health coverage in 2014 is unconstitutional. Other federal courts are sure to weigh in on the issue in 2011.
• FICA taxes on payments to medical residents. The U.S. Supreme Court has agreed to hear the case on whether payments to residents are wages subject to FICA or stipends exempt from FICA. The case will be decided no later than the end of June.

One of the best ways to stay up to date on tax developments is to follow postings on JKLasser.com.