With tax implications looming over most of our major financial decisions, it’s time to take a look at a few things you can do to lower the tax bite this year, and prepare to pay less in taxes next year.

Since the financial information you report on your tax return is from the previous year, there is often very little which can be done to improve your tax situation when the time comes to file. However you can be sure to avoid common mistakes, and tax advantage of overlooked deductions.

FIRST, THE OPPORTUNITIES

While most of us know about deducting contributions to charities, many forget we can also deduct mileage we put on our car to conduct charitable activities. Granted it’s only 14 cents a mile, but as always, these small amounts can add up.

Speaking of mileage, did you know you can also deduct travel expenses for medical transportation? When going to see your doctors, mileage, parking fees and toll road fees, all are write offs on your tax return.

One last thing on mileage, you can also write off your trips to see me (or any financial advisor). Then remember to deduct fees paid to your financial advisor along with any investment magazines and subscriptions. Should you have been forced to close a CD or other investment early and paid a penalty, this too can be deducted.

Do you know that estate tax on income in respect of a decedent is deductable? I know that sounds complicated, but it simply means if you inherited money in an IRA, and the estate paid estate tax on that IRA, you can deduct the estate tax paid as you withdraw the money from the IRA.

Another important thing to remember is even if you don’t itemize, you can still deduct property taxes as well as the sales and excise tax paid on purchasing a new vehicle

There’s also a small tax benefit as you reach 65 years of age. The standard deduction, if you are not itemizing, goes up at age 65. If you are single and under 65 the standard deduction is $5,700, while it increases to $7,100 for those 65 and over. For those married couples, the deduction goes up by $1,100 for each spouse age 65 or over.

AVOIDING THREE BIG MISTAKES

• If you own any mutual funds, you should know that each year you pay taxes on the dividends and capital gains they pay out, even if you had that income reinvested in the fund. If you sold any funds last year, make sure you know your correct cost basis. This is the amount you invested, plus all of the reinvested income over the entire time you owned the fund. A common mistake is just using the gain or loss from your original investment which will sell you short on your tax return.
• Remember, the IRS receives a copy of all of your 1099s. This means you need to be careful to include interest and dividends from all accounts. Even if the amount is small, missing one raises the old red flag, which is never a good thing.
• Lastly, be careful calculating the taxable portion of your social security income. This can be tricky. For example, income from muni bonds, even though it’s tax free income, still counts towards your provisional income. As a side note, if you are still holding muni bonds please refer to my article from last month (“Are You Betting On Bonds”) and review your holdings carefully.

Clearly no single article can deal with all the potential issues. If you have a fairly simple return, free help is available from the AARP. You can go online to www.aarp.org and do a search for “tax aid locator,” or call the AARP at (800) 687-2277 to find a location near you.

For more complex returns, we strongly recommend the use of a professional tax preparer. For a discount on this year’s tax return, call our office, ask for Mark, mention this article and ask for the “Life After 50” reader’s discount.

William Jordan is a nationally recognized financial advisor and well known speaker on a variety of financial and investment topics. To attend his free Maximum Income Workshop, contact his office at (949) 380-8600 or online at www.WilliamJordanAssociates.com.