You’ve donated your time, your money, and your sanity. Some of it’s actually tax deductible.
If the amount you owe in taxes this year is making you want to stop volunteering and start earning a paycheck then remember this: the more money you make the more you pay the IRS. So while yes, the work you do for the Parent Teacher Organization at your kids’ school garners mostly emotional – rather than financial – returns, there are some steps you can take all year long to lower your taxes, says Julie Murphy Casserly, a CFA and author of The Emotion Behind Money. They’re mostly small tax deductions but lots of them can add up to make a difference.
1) Add up the cash you gave the PTA. If you wrote a check (or gave a credit card or paid with good ole fashion bills) to the PTA – assuming it’s a non-profit organization – you can deduct that donation amount from your income, says Murphy Casserly. So that $25 check subtracted from your income may not sound like much but there’s more coming and if you can collect $1000 of donations – you’ll cut your tax bill by $310 if you’re in the 31 percent tax bracket. Can you think of something valuable to do with $310? Thought so. Remember as the school year ends to keep track of them for the taxes you’ll file next January.
2) Gather together the chocolates, wrapping paper and other items sale on which you were suckered into spending money. You can’t deduct the cost of those items if you keep them — but you can if you give them to charity! While you’re at it, round up all those T-shirts and jeans and toys and appliances you don’t want anymore.
“Moms are notorious for having too much stuff,” says Murphy Casserly. “Fill up one bag each month, give it away and instantly lower your tax bill”
By how much? Clearly, your 5 year old toaster isn’t worth what you initially paid says Murphy Casserly, so the rule of thumb is to use about 50 percent of the purchase price. Murphy Casserly herself recently rounded up 80 T-shirts, gave them away, and deducted $5 for each one for a total of $400. Just be careful not to count your stuff as overly valuable.
“Remember the IRS is broke too,” she says. “So take what’s rightfully yours but don’t push your luck or they’ll come after you.”
3) Keep track of what you buy at silent auctions. If that extra martini at the dinner dance caused you you pay more than a product is actually worth, that extra money counts as a donation, says Murphy Casserly. For example, if you paid $600 for a family photo session that’s valued at $400, then $200 is tax deductible. Save receipts and deduct conservatively, warns Murphy Casserly, because the IRS has no problem calling you in for an audit.
4) Contribute to college. Putting money into a 529 college savings plan sheilds your money from state taxes, says Murphy Casserly. So if you’re in the 31 percent tax bracket, you save 31 cents for every dollar you put into these plans for higher education.
5) Start a side business. If you don’t have a 401K plan and you do have some income, invest 20 percent of your earnings into a special retirement plan, says Murphy Casserly. It’s called a SEP (simplified employee pension) and if you fall in the income limits, you can put untaxed money there so you have more gold for your golden years. Just to to any mutual fund vendor or even your own bank.
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