Year end tax strategies
Here’s a quick checklist of tax savings strategies to consider and apply before the end of December:
1. Make Charitable Contributions and Donations:
Generally, for individuals, contributions to tax-exempt charitable organizations are limited to 50 percent of the taxpayer’s adjusted gross income for the tax year. Those unused items cluttering closets can be donated to a qualified charity or non-profit organization and deducted as charitable contributions. Document your donations by saving receipts, cancelled checks and any letters or correspondence from the charity.
To claim a charitable contribution, you need to deliver or mail checks on or by December 31st; postmarks must be on or before December 31st. Checks placed in the offering on the first Sunday will not qualify for a charitable contribution deduction even if the check is predated or was actually written in previous year. However, checks that are written, mailed and postmarked in the current year will be deductible even if they are not received by the church until next year.
Donations of property such as old clothes or household items must be in “good used condition.” Taxpayers who keep total noncash donations to $500 or less don’t have to fill out IRS Form 8283. But a donation of a household item worth $500 or more may require an appraisal. See IRS publication 526 for details.
2. Pay state and local income taxes now:
That way you can deduct them this year. Any payments made on a credit card or by check dated before the end of the year are eligible.
3. Review your housing allowance designation and expense.
If your YTD expense is equal or greater than your designated amount, your housing allowance may need to be amended before the next pay period. Housing allowance can be amended at any point during the year. However it can not be changed retroactive.
4. Add to your retirement accounts, 403b and IRAs.
The deductible amount for a contribution to a traditional IRA is up to $5,000 per person, and up to $6,000 per person age 50 or older. 403b contribution must be made by December 31st. There’s even more time to add to the value of your IRAs, right up to the April 15th deadline.
|Tax Year||Regular Contribution Limit||Tax Year||Additional Catch-Up Contribution Limit|
403(b) Plan Dollar and Percentage Limits
Tax Year Elective-Deferral Contribution Limit 2010 $16,500 2011 $16,500 2012 $17,000 2013 $17,500
Tax Year Catch-Up Contribution Limit 2010 $5,500 2011 $5,500 2012 $5,500 2013 $5,500
5. Check the Amount of Your Medical Deductions:
Taxpayers can check to see if they have enough medical deductions to itemize (over 7.5 percent of adjusted gross income) this year. It’s not too late to schedule additional dentist or eye doctor appointments. However, it may make sense to “bunch” medical deductions into one year, and plan ahead.
6. Know What Medical Deductions Are Allowed:
There are numerous medical costs that are deductible including lasik eye surgery, doctor-prescribed weight loss programs, and capital expenses for ramps, railings, etc. installed in a home to accommodate disabilities. Don’t overlook mileage to and from the doctors, hospitals, and the pharmacy.
7. Sell “loser” stocks.
Perhaps you have experienced a stock market slide and its effect on your portfolio. There’s still time to sell stocks or mutual funds and take the losses to offset your income.
8. Empty flexible-spending accounts.
You must spend these funds before year end or else forfeit them unless your plan has a grace period. The list of reimbursable expenses is wider than many realize, extending to contact-lens solution and acupuncture. (See IRS Publication 502.)
Be warned, though: because of a change in the law, no reimbursements are permitted for purchases of over-the-counter medicines after Dec. 31, 2010 without a doctor’s prescription, regardless of plan rules.
9. Max out your 403(b).
Contributions to retirement-savings plans like 403(b)s are due by Dec. 31.IRAs may be set up and funded after year end.
10. Make gifts.
Any taxpayer may give any other taxpayer up to $13,000 a year free of tax. Using this provision, a couple with three children and six grandchildren could move $234,000 a year from their estates. Property and securities may be given as well as cash, but the asset’s cost basis carries over.
11. Make 529 college-plan contributions.
Act before year end to qualify for the state tax benefit. There is no federal tax deduction, but accounts can grow tax-free.