Tax Planning Tips
For a more detailed tax planning page go to this comprehensive year end tax planning overview.
1. Sales 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 2009 tax return. Review your receipts for the year, if they're available, or use the Sales Tax Deduction Calculator available on the IRS website (here) to determine whether you're better off deducting sales tax as an itemized deduction.
2. Retirement Plan: Maximize your retirment plan contributions
In general, the IRS allows you to contribute up to $15,500 to a 401(k) plan if you are under 50 years of age(up to $20,500 if you are over 50). You can offset your taxes by up to $500 this year for instituting a qualified retirement plan for your business. More detail on the saver's credit.
3. Flexible Spending Account
Use up your Flexible Spending Account (FSA) dollars: if you still have money left in your FSA, don't let it go to waste. Stock up on qualified over-the-counter medications, get new glasses or contacts, or go see your dentist. Check with your employer to see if they offer a 2 1/2 month grace period in which to spend your flex dollars.
4. Home Mortgage Refinance
If you refinanced a home mortgage in 2009 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 on your 2009 return. (Each "point" equals 1% of the total loan amount.)
5. Education Savings
Want to contribute to a Coverdell education savings account for your child or grandchild? You can make contributions of up to $2,000 as late as April 15, 2010.
6. Charitable Contributions
Donating clothing and household goods by Dec. 31, 2009 will allow you to deduct the fair market value of those donations on your 2009 taxes. Also, don't forget that for all cash donations 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.
7. Misc. Deductions
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, tuition and fees for higher education, teacher expenses, purchase of a hybrid car and deductible IRA contributions. If you have any investments that have generated deductible losses, you can use the losses to offset any gains. You can use $3,000 of net capital losses in excess of capital gains to offset ordinary income. Go Green--this 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.
8. 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.
9. Disaster Loss
You can claim the loss on your 2009 tax return or on an amended 2008 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.
10. Car (business use)
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.
11. Business Equipment Depreciation
Did you purchase new business equipment for your business in 2009? Select the method for writing off its cost that will provide you with the greatest tax benefit.
Also visit this comprehensive year end tax planning overview page.