I have written in the past about the value of fully utilizing all deductions when it comes to income tax preparation. The IRS will certainly come after you if you don’t report all income, but the IRS will not hunt you down to let you know you missed a deduction. It’s your responsibility to put forth the time and effort, but with that being said, I’m going to say something that may seem antithetical: Sometimes it’s not worth your time or energy.
Knowing where not to look
Not every deduction is worth your time and energy to substantiate and use. Sometimes I’ve seen clients who have spent a great deal of time gathering information only to find out it’s not allowable on their return. A good example of this issue comes in the form of medical expenses. Medical expenses are an allowable deduction after the expenses surpass 7.5% of your AGI (Adjusted Gross Income). This AGI number increases to 10% in 2013 with The American Taxpayer Relief Act of 2012. So, spending a Sunday afternoon finding and organizing receipts only to find out it won’t change your return is not a good use of your time.
We are all busy. Utilizing our time to the best of our ability will make us happier, so knowing where not to look is important. Another example of time not well spent would be for charitable mileage. Did you even know that miles driven for charitable purposes are deductible? Sounds like a winner, right?
The problem is charitable miles are deductible at 14 cents a mile. Here’s an example: If a taxpayer drove 1000 miles in 2012 related to charity, they would receive a $140 worth of deductible miles on their Sch A (itemized deductions). If this taxpayer is in the 25% tax bracket, their charitable mileage would equate to a $35 tax savings.
Sure, if you’ve kept records throughout the year, it’s an easy addition to the return to save that $35. But, if it requires a good deal of time and energy to put together the mileage log, it may not be worth your time.
The next time you carve out an afternoon to compile that shoe box full of receipts into a manageable document for your taxes, think about whether or not it is worth the time.