photo by JD Hancock
The end of 2010 is fast approaching, but there are still moves that you can make now that will decrease your 2010 tax liability. This hopefully means a larger 2010 tax return (or a smaller check for you to write out in April)!
Here are five things that you can still do:
Contribute to a Traditional IRA
If at the end of 2010 you will still be under 50 years old, then you are allowed to contribute up to $5,000 into an Individual Retirement Arrangement (IRA). Technically, it’s the “smaller of $5,000 or the amount of your taxable compensation for 2010.”
However, if you are 50 years of age or older by the end of 2010, then you are allowed to contribute an extra $1,000 to bring your maximum up to $6,000!
The deadline for completing your IRA contributions is the due date of your 2010 tax return – which for most people, means April 15, 2011.
Contribute to a 401 (k)
You are able to put away up to $16,500 into a 401 (k) plan if you are under the age of 50.
If you are 50 or older, the IRS also allows you to contribute an extra $5,500 towards retirement! Making your maximum allowable contribution $22,000!
Well, chances are you fit into one of these two categories. So if you are not on pace to contribute up to the maximum by December 31, 2010, then make a call to your HR department, and increase your contributions!
You have until December 31, 2010 to make a charitable contribution to a “qualified organization” and have it count toward this year.
In the last few years, the IRS has become a lot more strict in what documentation they require for charitable contributions, click here for more detail.
This is a category that I see overlooked all the time! Most people don’t know that you can deduct a portion of your medical expenses on your tax return. Even those who do know (because I tell them every year when I prepare their taxes), tend to forget throughout the year.
However, you still have time to not only gather up all of your receipts, but to plan any office visits or medical procedures for 2010! Here is a list of qualifying medical expenses. Of course, there are a couple of things to consider about this deduction (taken directly from IRS Publication 502)…
- You can include only the medical and dental expenses you paid this year, regardless of when the services were provided.
- You can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your AGI(Form 1040, line 38).
Your AGI is $40,000, 7.5% of which is $3,000. You paid medical expenses of $2,500. You cannot deduct any of your medical expenses because they are not more than 7.5% of your AGI.
In the example above, if your medical expenses rise to $3,500, you will be able to deduct $500 (i.e. the amount above 7.5% of your AGI).
Sell Your Loser Stocks
Here is what the IRS has to say:
Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040 Schedule D, Capital Gains and Loses.
If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.
So, if you have a few stocks that you were contemplating selling in the very near future, December may be the best time.
- Begin to collect and organize all of your paperwork now. The last thing your tax preparer wants to see, is a shoebox full of receipts and a blank stare on your face!
- Be sure to spend every dime in your Flexible Spending Account! Also, sign up for next year (if it’s not too late), but be mindful of the recent changes to Flexible Spending Accounts.
- Know the rules! If you think something applies to you, do a quick 3 minute search on the IRS website to be sure.
- If you believe you are eligible for a return, file your taxes as soon as possible!
- Take advantage of energy tax credits while you still can