With 3 weeks remaining in the 2010 tax season, it is time to get your receipts together for filing in 2011. Most are breathing a sigh of relief as the tax reductions passed several years ago have been extended. Thus, most won't experience an unpleasant surprise when they file their taxes. But it IS time to begin getting ready for your tax return, as well as a little bit of last minute tax planning to reduce your tax liability as much as possible.
If you anticipate a refund, you'll want to file your taxes as soon as possible, so you can obtain your refund that much sooner. If you prepare your own taxes, it is time to update your tax software to cover the changes for tax year 2010.
More importantly, use the last 3 weeks to maximize your deductions for the end of the year. There may be items you haven't considered, or have forgotten about.
If you bought your first home in 2010 (prior to October 1, 2010), get your receipts together to qualify for the first time home buyer tax credit.
Consider Contributing More to Your Retirement Accounts.
If you have a little extra money this year, or a substantial Christmas bonus, consider putting it into your 401K before January 1, 2010. If you do, you will reduce your gross income, lower your tax liability and build your nest egg. Many who have just started a job will place their entire paycheck in their 401k at the end of the year, to keep their income as low as possible. You can contribute up to $16,500 into your 401k or 403b for 2010 and up to $22,000 if you are over age 50.
Converting Your Traditional IRA to a Roth IRA.
If you have been considering converting your traditional IRA to a Roth IRA, speak with your tax advisor about whether it is beneficial to you, as many factors will go into this decision. But for this year, you can convert your IRA to a Roth IRA and defer any tax liability over 2 years.
Make a Charitable Donation.
If you are considering donating to charity, now is the time to benefit from the charitable deduction. A cash contribution before January 1, a donation of a car to a charity, or a donation of clothing and household items can all be considered a charitable donation. With many experiencing difficult times this year, charitable organizations are stressed to levels far surpassing prior years. Your donation will be greatly appreciated. You will be helping someone less fortunate, and lower your tax burden in the process. It is a win-win situation.
If Your Income Suffered, But You Have Capital Gains, Considering Taking the Gain This Year.
For people in the 10 and 15 percent income bracket, the long term capital gain tax is 0. Dividends are also at 0 in this tax bracket. If you have a stock to sell, or dividends to collect and your are in this tax bracket, now may be the time to do so.
Utilize the Residential Energy Efficient Property Tax Credit.
With winter here, if you are considering winterizing your home, do it before January 1. You can use it for insulation, high efficiency windows, energy saving hot water heaters, and similar items. The tax credit is up to 30%, and up to $1,500 combined for 2009 and 2010.
Review Last Year's Return.
As a final tip, review last year's return, and look for the deductions and tax credits you have taken. Are there deductions or credits you can take again this year, but haven't met the conditions yet? With 3 weeks to go by the end of the year, a few minutes reviewing this information can help next April.
Boris Flanagan is a creator and specialist of small business programs and products on subjects such as tax software reviews. Please visit http://www.tax-compare.com/ for more info on Online Tax Software.
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