Year-End Tax Estimate and Planning Tips for Tax Year 2011
Before you file your taxes, make sure you have done all the tax planning you can. Estimate your taxes and plan your deductions. A little tax planning can lead to a lot of tax savings!
For more detailed information on tax planning, go to this comprehensive tax planning strategy overview.
1. Estimate Your Tax Year 2011 Taxes (and Your Tax Refund) - Use a Tax Calculator
Don't wait until the end of the year to estimate your taxes. Plan your deductions and estimate your tax refund with the easy to use efile.com tax calculator.
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2. Deduct State Sales Taxes or Income Taxes
Under recent tax law changes you will have the choice of either deducting your state and local income taxes or your state and local sales taxes on your tax return. Review your receipts for the year, if they're available, or use the IRS Sales Tax Deduction Calculator to estimate your state taxes and determine whether you're better off deducting sales tax as an itemized deduction.
3. Estimate your Taxes and Maximize your Retirement Plan Contributions
In 2011, the IRS allows you to contribute up to $5,000 to a 401(k) or other qualified retirement plan if you are under 50 years of age, and up to $6,000 if you are age 50 or over. These contributions are fully tax deductible. In addition, you may also qualify for a $1,000 tax credit, depending on your income and the amount of your retirement contributions. Learn more about the Saver's Credit.
4. Saving with a Flexible Spending Account
A "spending" account is different form a "savings" account. You must use up your Flexible Spending Account (FSA) dollars or they disappear. If you still have money left in your FSA at the end of the year, don't let it go to waste. You can still get new glasses or contacts, or go see your dentist. New legislation even allows you to buy over-the-counter medications with FSA dollars as long as you have obtained a prescription from your doctor. And be sure to check with your employer to see if they offer a 2 1/2 month grace period in which to spend your flex dollars after the year ends.
5. Home Mortgage Refinancing and Deducting Points
If you refinanced a home mortgage in and it is a subsequent refinancing (which means you have already refinanced the original mortgage used to purchase the home), then points spent on the prior refinancing become fully deductible. (Each "point" equals 1% of the total loan amount.)
6. Education Savings
Estimate your tax return with different education savings options. Want to contribute to a Coverdell Education Savings Account (ESA) for your child or grandchild? You can make contributions of up to $2,000 per child (not per account).
7. Charitable Contributions
Donating clothing and household goods by the end of the year will allow you to deduct the fair market value of those donations on your tax return. Also, don't forget that for all charitable contributions of cash and donations of goods worth over $250, you must now have a bank record or written communication from the charity in order to claim the deduction.
8. Misc. Deductions = More Tax Savings
Even if you claim the standard deduction instead of itemizing personal deductions, don't overlook adjustments to gross income to which you may be entitled. Some often overlooked deductions include moving expenses, student tax breaks, purchase of an energy-efficient car, and deductible IRA contributions. If you have any investments that have generated deductible losses, you can use the losses to offset any gains. Go green--2011 is the last year to claim a credit for the purchase of qualified energy efficiency improvements to your existing home (including a new furnace, air conditioner, windows, doors, and insulation) or for the purchase of a residential solar water heating system, photovoltaic equipment, or fuel cell power plant.
9. Dividend Income
Check Form 1099-DIV to determine which dividends from mutual funds qualify for the maximum 15% tax rate. Check the box “qualified” to figure which dividends are paid from permissible sources—you must also determine whether you've held the shares on which the dividends are paid for more than 60 days during the 121-day period surrounding the ex-dividend date.
10. Disaster Loss
You can claim the loss on your 2011 Tax Return or on an amended 2010 Tax Return. Select the year in which your adjusted gross income was lower so that your disaster loss deduction will give you a greater write-off and more tax savings.
11. Car (Business Use Deductions)
You might be able to use the actual expense method or the IRS standard mileage rate to deduct your car expenses. You need proof of the costs incurred for business driving, select the method that gives you the greater write-off. If you don't have this proof, rely on the IRS standard mileage rate.
12. Business Equipment Depreciation
Did you purchase new equipment for your business in 2011? Depreciable business equipment includes such common items as cell phones and computers. If you have bought such items, you may be able to write off the expense over the useful life of the item. Select the method of depreciation that will provide you with the greatest tax savings.
Also visit this comprehensive tax planning overview page.