12 tax tips of Christmas
You have one more week to pay property taxes, add energy-saving improvements, dump losing stocks and empty your FSA account.
I'm a sucker for Christmas traditions. I watch A Christmas Carol (the one with George C. Scott as a robust Scrooge is my favorite). Actual Christmas carols are on the CD player. Ages-old schlocky but sentimental ornaments adorn our tree.
And as a writer, much to the dismay of some of my editors (I'm talking about you, Dan!), 'tis the season indeed! That means hauling out holiday hooks for stories and blogs.
Last year, I apparently had more time because I did 12 separate tax tips for Christmas.
2010, however, is a bit more rushed -- thanks, Congress, for putting off the tax bill until the last minute! -- so I'm offering you 12 tax-saving tips in this one post.
Lucky for you, I haven't mastered podcasting so you're spared my singing them to you! But feel free to sing yourself or hum "The 12 Days of Christmas" as you read.
- Make your home more energy efficient. In just a few days the possibility to make energy home improvements that could net you a $1,500 tax credit on your 2010 return expires. The new tax law continues some residential energy tax breaks, but for most common upgrades, the tax payoff in 2011 and beyond won't be as big.
- Consider paying your home's property taxes by Dec. 31. If you itemize, you can deduct that amount on your 2010 tax return. Of course, that means you won't have the deduction for next year, unless you pay your real estate taxes early again in 2011. But if you need the deduction this year, you've got just over a week to get the check to your county tax collector.
- Make your mortgage payment early. By getting the payment to your lender by the end of the year, the interest on that payment can be deducted on this year's tax return. And making sure the payment is received by Dec. 31 will ensure that there's no explaining to the IRS why you're deducting more interest than your lender shows on Form 1098 that you paid in 2010.
- Dump losing stocks. If you had a few holdings that didn't do well at all this year, now might be the time to get rid of them. If you had some capital gains, the losses on these dogs could offset your earnings, reducing or even eliminating any tax you owe. Even if you had no gains, you can use up to $3,000 in capital losses to trim your ordinary earnings. If you have more than $3,000 in losses, get a new stock adviser and then carryover the excess to the 2011 tax year.
- Donate to your favorite charity. Yes, I know you've already spent a lot on gifts for family and friends. But if you have excess cash, consider sharing it with those who are less fortunate. Not only is it a great way to get in the Christmas spirit, if you itemize you can deduct your charitable gifts. And it doesn't have to be cash. Most charities will take household goods (that are in good shape!) or even vehicles.
- Give more to family and friends. OK, you've already bought those near and dear to you the best presents in the world. But if you have a large estate -- and remember, the estate tax is back in 2011 -- you can reduce potential future taxes by giving away up to $13,000 to anyone you want. This financial gift can be cash or assets valued at $13,000 or less. And there aren't any gift tax issues for you or the very thrilled recipients.
- Buy a car. If you're thinking it's time for more fuel-efficient wheels, you might be able to drive away with a tax break as well as a new vehicle. The hybrid vehicle tax credit is available through Dec. 31. The only problem is that your choices might be limited. The law phased out the credit on the most popular hybrids. Still if you're a Chevy fan like me, you have the most options. Tax credits are still available this year on some Chrysler/Dodge, Nissan and Mazda cars, as well as on various BMW and Mercedes models. And even if you don't get the hybrid credit, the sales tax you pay for the car can be deducted if you opt to itemize sales tax you paid instead of income tax.
- Spend your FSA money. If you have money in a medical FSA, or flexible spending account, you probably need to need to make some reimbursable medical purchases or schedule some allowable treatments soon. Although some companies allow a grace period until March 15 for spending down FSA money, many don't. In those cases, if you don't use your FSA money by the year's end, you lose it. An easy expense is over-the-counter medications. In fact, you might want to stock up on OTC drugs, since next year you'll need a doctor's prescription to get FSA payback for the purchases.
- Make miscellaneous payments. Costs such as union or professional dues, job-related educational expenses and subscriptions to business publications are deductible as itemized expenses as long as you have enough of them. Your total miscellaneous expenses must exceed 2 percent of your adjusted income before you can write them off. If you're near that number, extend that subscription and make other payments to get over the deduction hurdle. And then sit down and work out a bunching strategy so you don't have to do this at the end of the tax year next time.
- Fill out a mock tax return. I know, it's bad enough filling out a 1040 when you absolutely have to do so for real. But if you do at least a down and dirty test run now, it could save you a bad surprise next filing season. You might find you're going to owe more than you expected. In that case, you can start planning on how to come up with the cash. Or you can ask your boss to add a few extra dollars from your final 2010 paycheck to cover that shortfall and prevent or at least reduce any potential underpayment penalty.
- Adjust your withholding. Regardless of what you find when you do your tax return dry run, you might want to tweak your payroll withholding. Some folks view their annual tax refund as a forced savings account. If that's the only way you can save, then it's better than nothing. But if you're having too much withheld, you might want to consider getting the money each payday. It's easy to do; just give your boss a new W-4.
- Sock away retirement money. In fact, that extra money from adjusted withholding could go toward the time when you don't have to work. If you have an IRA, put some cash into the account now. Yes, you have until next year's filing deadline to contribute, but the sooner you start saving, the more the power of compounding works to your advantage.
I know that 2010 is rapidly slipping away, but I hope some of these tips can help you save on your coming tax bill.
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