Tax trimming starts at home
Now it's time to do the pre-filing preparation that could help you trim your taxable income. Costs related to your home are a good place to start.
Homeowners know the value of a mortgage. Not only does the loan get you into your house, the interest you pay on it is tax deductible. Your lender will send you a Form 1098 with this amount. If you made an extra mortgage payment at the end of last year, make sure that added interest payment is counted.
Mortgage interest isn't limited to your primary residence. If you have a vacation home, interest on that loan will be on a separate Form 1098 and it is just as deductible. And don't forget the interest you paid on a home equity loan.
Using taxes to reduce taxes
Homeowners get another way to reduce what they pay Uncle Sam: claiming real estate taxes as a tax deduction.
If part of your mortgage payment each month includes an escrow amount that's used to pay annual real estate taxes, then the Form 1098 you get from your lender also will tell you this amount.
Then there are any state and local income taxes you paid. Check your W-2 for this information, and be sure to deduct those, too.
Don't own a house? Don't despair. There's still a tax deduction opportunity for you if your state or county charges a personal property tax. Most often, this tax is on autos, so if you pay, make sure the collecting tax agency sends you a statement showing how much so you can put it on your Schedule A.
Good deeds, good records, good tax break
Good deeds can be their own reward. They also can reward you at tax time.
When you give cash to a qualified charity, get a note from the group acknowledging your gift if it was $250 or more. If your donation was smaller, you don't need a formal receipt, but you will need some sort of documentation, such as a canceled check or bank or credit card statement, in case the IRS later has any questions.
Are you dropping off clothes and household items at a local collection center? Get a receipt for those. And make sure that the articles were in good shape. The IRS can deny deductions for anything that it deems of "minimal monetary value." In tax speak, that means you can't donate trash and then write it off.
You also can get a tax break for volunteering. You can't deduct the value of your time, but you can deduct 14 cents for each mile you drove to help the group. Documentation of your effort can be as easy as a mileage notation on your calendar on the days you worked.
Accurate, organized info means easier filing
Now that you know what data you'll need to file your taxes and the info that can help reduce that bill, you've taken a big filing first step.
Now you'll be able to find the tax documents you need and keep track of all the tax-related statements you'll receive. And you'll immediately realize if you're missing anything or if something needs to be corrected.
Even better, by getting organized early you give yourself plenty of time to complete filing taxes properly, saving you time, anxiety and in many instances money.
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