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Tax Tips

Smart Steps to Get Ahead of Your 2016 Tax Return

Keep accurate records to take advantage of these breaks.

It’s not too early to start thinking about your 2016 tax return. Year-round record keeping is particularly important in the following areas:

See Also: Amend Your Tax Return to Correct a Filing Mistake

College. If you plan to claim the American Opportunity tax credit or other educational tax breaks, keep good records of payments for tuition and other eligible expenses. Following reports that the IRS paid out billions of dollars in erroneous credits, taxpayers who claim these breaks are now subject to more-stringent reporting requirements.

Health savings accounts. These tax-advantaged accounts can help lower your medical costs, but it’s important to keep track of how you spend the money. Withdrawals for nonqualified expenses are subject to taxes and a 20% penalty if you’re under 65.

Sales taxes. In late 2015, Congress made permanent a deduction for state and local sales taxes that you can take instead of the write-off for state income taxes. This deduction primarily benefits residents of the nine states with no income tax, but if you buy a big-ticket item (or items) this year, save your receipts. You may get a bigger deduction by claiming sales taxes, even if you live in a state that has an income tax.

See Also: IRS Tax Audit Red Flags