With daylight savings time this month, spring really is coming. So, in keeping with the tradition of spring cleaning it’s time to get the salt out of the rugs and organize your belongings. Here are some spring cleaning tips that could also yield tax savings.
Donating
Did you know the IRS currently allows you to give up to 30% of your property each year to qualified charities for tax deductions? Download a copy of IRS Publication 526 to see what the IRS deems a qualified charity.
What to Consider Before You Donate
- All contributions in cash or property must be made before the close of the tax year for which you take the deduction.
- In order to claim a tax deduction for donations, you must itemize all eligible deductions including—medical, long-term care, interest, taxes, etc. And they must exceed the IRS standard deduction.
- To take a deduction for property donated, it must be in “good used condition” or better and you must establish its fair market value. Download a copy of Determining the Value of Donated Property.
- Donations worth more than $250 must be accompanied by a written record. For most clothing and household goods, that’s the thrift shop value.
- Assign a value in line with what an organization that resells thrift items might charge. Check Goodwill for how it prices clothing, household items, sporting goods, and furniture.
FidSafe® Tip: Consider taking photographs from your mobile phone of the items you donate and uploading them to FidSafe® with digital copies of any donation receipts. You can then file them in your Taxes folder or create a subfolder called Donations by naming a new folder Donations and dragging it into your existing Taxes folder.
Bigger Ticket Deductions
Any item valued at over $5,000, such as art or jewelry, should have an appraisal. If the item is over $20,000 attach the appraisal to your return with an 8 x 10 color photograph of the donated valuable. This does not apply to vehicle deductions, which are based on how much the charity is able to sell the vehicle, not the appraised value.
Financial commodities such as stocks and bonds can also be donated to charity. This can be especially beneficial to you and your chosen charity if its value is many times the original price. By donating the stock to charity you get the tax deduction based on your marginal tax rate, but you also get to avoid the capital gains tax on those shares.
Documentation for Taxes
Swimming in years’ worth of paper? Here are some tips on which documents you need to keep and what you may be able to toss.
Documents to Consider Shredding
Now (or when you’ve reconciled your bill or bank statement)
- ATM receipts
- Other receipts (Hold on to the receipt if it’s a high-ticket item, such as a computer, car, etc. For other items, as long as you don’t plan to return them, or need the receipt for a rebate or warranty, go ahead and toss it.)
- Prospectuses and other information about investments you might be considering. (All Fidelity prospectus files may be downloaded electronically and placed in FidSafe if you want to refer to them at some future date.)
After One (or when your taxes have been filed and you’ve received your year-end consolidated statements)
- Bank statements (unless you’re applying for Medicaid, in which case some states require five years of bank statements.)
- Brokerage statements
- Cell phone, cable, telephone and Internet statements (unless you’re deducting them: for work or home office-related expenses)
- Credit card bills
- Pay stubs
- Social Security statements
- Utility bills (unless you’re deducting them: for work or home office-related expenses)
Documents to Consider Keeping
Consider scanning these originals and placing a digital copy in your FidSafe for reference and ease. Keep the originals securely stored, perhaps in a safety deposit box or safe.
For Seven Years (or as long as you may need them for taxes)
- Child-care records
- Flexible-spending account documentation
- 401(k) and retirement plan year-end statements
- IRA contribution statements
- Purchase records for investments
- Records of charitable donations
- Records on real estate you’ve sold
- Tax returns with back-up documentation
As Long As You Own the Asset
- Insurance policies
- Receipts for high ticket purchases (technology, art, antiques, jewelry)
- Receipts for renovations or investments made on your home or property
For Life
Some documents are important to have on hand every year. These include but are not limited to:
- Identification & license documents
- Family change records: birth, adoption, marriage, etc.
- Property change records
- Legacy & estate planning documents
FidSafe Tips: You can use spring cleaning as a once-a-year excuse to go through your list of these essential documents, such as: birth certificates, marriage licenses and the like, to make sure they are all in good order, in a safe place.
FidSafe provides a form to help you record the current location of each original document in the FidSafe Fundamentals Kit.
Electronic vs. Paper
The IRS has allowed electronic tax records and receipts since 1997, and many accountants offer digital tax records that can save you time and take up less space in your filing cabinet. Here are a few things to remember when it comes to going digital for taxes.
What Makes Electronic Receipts Valid to the IRS
Keep these in mind now in case you ever face an audit.
- Regular, consistent and accurate data backup is required by the IRS if you want to use electronic records. Best practices include storing copies of records in a cloud-based service such as FidSafe.
- Include the vendor’s name and address, transaction date and the amount paid on each receipt. Also, note what you bought and its business purpose.
- Don’t procrastinate. Enter your receipts with notes as soon as you can after each expense.
- Make sure the receipts that you scan or photograph are legible before you save them, so you can print hard copies if needed.
FidSafe Tip: FidSafe may be an ideal place to store copies of all your receipts and records. You can file them in your FidSafe Taxes folder and consider making a subfolder for Tax Records and Receipts.
Precautions
Consider checking with your accountant or legal advisor before you claim deductions or toss any documentation. To avoid potential identity theft, be sure to shred any originals when you dispose of them.
Look for articles on other aspects of tax planning in the coming months.
Do you have feedback on this article? Please email us.
*FidSafe does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. FidSafe cannot guarantee that the information herein is accurate, complete, or timely. FidSafe makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
