MAXIMIZE YOUR RETIREMENT ACCOUNT CONTRIBUTIONS
If you haven’t contributed the maximum to your tax-deferred 401(k) retirement savings account, some employers allow you to catch up for the current year. For 2010, you can contribute a maximum of $16,500 (and an additional $5,500 if you’re over 50 years of age by the end of the tax year). Since your contributions are made with pre-tax dollars, your current taxable income is lowered.
GIVE TO CHARITY
Giving money or other items to a charity is a great way to save on taxes and help others. If you itemize, your contribution is tax-deductible. Just be sure to get your donation postmarked or in the hands of your favorite charity by December 31 and to obtain a receipt for donations of $250 or more. Warning: Congress limited the donation for used autos that the charity intends to sell. Don’t forget–Idaho allows a tax credit for certain donations to educational and rehabilitative entities. Ask me for a list.
USE FLEXIBLE SPENDING ACCOUNT DOLLARS
Many companies offer flexible spending accounts that enable you to set aside pretax dollars for qualified healthcare costs. Be aware that you forfeit any money left unspent in your account at the end of the year. As long as you expend money on eligible healthcare items by December 31, you can be reimbursed from your account after year-end. So order extra contact lenses, schedule an extra dental cleaning, or stock up on prescription medications now.
BOOST MISCELLANEOUS ITEMIZED DEDUCTIONS
Items such as tax preparation fees, job-hunting expenses, certain unreimbursed employee business expenses, and some investment costs are deductible as miscellaneous itemized expenses. To qualify, they must exceed 2 percent of your adjusted gross income (AGI). For example, if your AGI is $50,000 and you’ve already incurred the minimum of $1,000 in miscellaneous deductions, you’ve met the 2 percent floor and should check into accelerating additional miscellaneous deductions into 2010.
PREPAY YOUR MORTGAGE PAYMENT
If you itemize deductions, consider paying your January 2011 mortgage payment by December 31, 2010 to deduct the interest this year.
SELL LOSER STOCKS TO OFFSET GAINS
Tally up your investment winners and losers for 2010. Then, determine whether it makes sense to take tax losses by selling your unattractive stocks. If your losses exceed your gains, you can deduct up to $3,000 in capital losses ($1,500 for married couples filing separately) against your other income, reducing the amount on which you must pay taxes. Losses in excess of $3,000 can be rolled over into subsequent years and do not expire.
If you’re self-employed or have sideline income, consider deferring income into 2011 by delaying billing. Employees don’t have a choice of when they get paid, but if you’re in line for a year-end bonus, you might ask your employer to hold off until January. Of course, it only makes sense to defer income if you expect to be in the same or lower tax bracket next year.
TALLY YOUR SALES TAX
You may deduct the larger of your State income taxes paid or your State sales taxes paid. If you made a number of large purchases this year or added on to your home, you may be better off keeping track of your sales tax paid for 2010. Save your credit card receipts and cancelled checks. Get your builder to breakout the sales taxes that were paid on the building materials used in your addition.
ORGANIZE YOUR TAX RECORDS
Organizing your tax records and paperwork early gives you time to request copies of any missing documents and makes it less likely that you will miss valuable deductions when you file your 2010 tax return. If you are unsure of the documents you need to complete and support your tax return or to take advantage of other tax-savings opportunities, consult a CPA.