Maximize Your Tax Savings before Year-End
If you find doing your taxes about as much fun as, say, flossing, then welcome to the club! It’s a club more than 182 million strong – the number of income tax returns filed in 2009, according to the Internal Revenue Service.
To make your “club membership” a bit more enjoyable, consider adopting any of the following tax tips before year-end.
Take advantage of the saver’s credit. If you’re a low- to moderate-income taxpayer, plan to take the saver’s credit (known formally as the Retirement Savings Contribution Credit). It’s based on your contributions to an employer-sponsored retirement plan, such as a 401(k), or an individual retirement account. The credit ranges up to $1,000 for single taxpayers and up to $2,000 for married couples. Eligibility is based on adjusted gross income: up to $28,250 in 2011 for taxpayers who are single or filing separately; $42,375 for those who file as head of household; and $56,500 for couples filing jointly.
Make a tax-free charitable contribution. If you’re age 70½ or older, you can make contributions to charitable organizations directly from your traditional individual retirement account (IRA) without paying any tax on your IRA withdrawal. In 2011, you may contribute up to $100,000 from your IRA to charities, tax-free. Note that qualified charitable contributions count toward your required minimum distribution for the year.
Beware of a major rule change in flexible spending accounts (FSAs). The greatest change in FSAs in 2011 is that you’ll now need a written order from your doctor to receive FSA reimbursement for over-the-counter medications, such as nonprescription cold tablets.
Buy a home. Despite distant Congressional rumblings about tweaking mortgage deductions, you may still be able to deduct your mortgage interest, property taxes and points paid to obtain a mortgage, as well as interest on home equity loans (up to $100,000). Plus, if you live in your home at least two of the five years before you sell, you won’t owe taxes on up to $250,000 in profit ($500,000 for a married couple filing jointly). With home prices and mortgage rates still relatively low, now may be a great time to buy!
Consider taking a deduction for state and local sales taxes. As of 2010, taxpayers can take an itemized deduction for state and local sales taxes instead of an itemized deduction for state and local income taxes. That’s potentially a big help if you live somewhere without an income tax, or if you make a major purchase this year, such as a motor vehicle or boat.
Get Expert Help
Have a question (or two or three) for a qualified tax professional? Call now! You’ll find tax pros much more available and amenable to your questions now than in mid-April. Plus, you’ll feel better prepared come filing time!