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Think About Your Tax Deductions

You’re probably thinking more about the turkey next week (mmm stuffing!) than you are about your tax situation, as you should be, but I wanted to touch on some things you might want to do now in order to help your out tax situation before it’s too late (i.e. New Year’s Eve). Besides charitable contributions, which should be in every employed person’s mind anyway, there are a lot of things that you should be doing now so you can capitalize on them come April 15th next year.

Be Generous, Donate
Charitable contributions to an eligible organization are deductible. If you happen to get something back, you can only deduct the difference between your donation and the gift/dinner/whatever you received in return. This was the first year I’ve actually donated money, yes I’ve been a little derelict, and I’m glad I did it – it won’t be the last. This deduction includes anything you donate even if it isn’t a cash donation.

Refinancing Points
You average the cost of the points over the life of the loan to figure out what you can deduct from your taxes per month. Let’s say you have a 120 month loan (10 years) and paid $2,400 in points, then you are entitled to $20 a month in deductions because of your points. If let’s say you refinanced in June, then you’re entitled to $120 this year for the six months of the loan.

Now let’s say you already were deducting points, the balance of that is deductible the moment you refinance. So if you had $3,000 “left” to deduct, it immediately is deductible this year plus you can add the $20 a month from the example above.

Students: Lifetime Learning and Hope Credits
I’ve discussed this in the past but students are entitled to credits if their income doesn’t exceed certain thresholds. I’ve done a better job writing about the Lifetime Learning Credit and the Hope Credit [3] in the past so I invite you to read those.

Go Hybrid
I’ve also talked about the tax benefits of buying a hybrid or other “green” car [4].