The first piece of advice is to get some advice. A financial planning expert such as a Certified Financial Planner™ professional can review your overall financial situation, and a tax professional can add additional expertise. Here are some other ideas:
Start pulling your records together: Even if you have a longtime filing system you trust or computer-based recordkeeping that’s well in place, set aside a day or two to make sure receipts and entries make sense before the holidays and year-end activities swing into full gear. Even the most attentive taxpayer can make bookkeeping mistakes for personal or business taxes. If your tax situation is particularly complex or you’ve undergone significant lifestyle or business changes during 2010 –(i.e. getting married, getting divorced, going bankrupt) or a significant increase in income, a large capital gain or even an inheritance – it might make sense to sit down with your planner and tax professional before New Year’s.
Defer income if that makes sense for you: If you are self-employed or if you operate a company, consider whether it makes sense to defer income until 2011 as a way to save money on taxes. Though this is fairly common advice, it is very tax-situation-specific, so check to see if deferring income is a good strategy.
Remember your retirement: If you and your spouse file jointly, by contributing to a traditional IRA each of you might be able to deduct up to $5,000 if you’re under 50 by the end of the year -- if you’re older by yearend, that deduction rises to $6,000. But consult a tax expert to see if you qualify for those limits based on your other retirement investments and income levels. Some employer qualified plans may also allow large employee contributions prior to year’s end—if you can afford to make one, check with your plan administrator.
Check investment gains and losses: If you have some capital losses in your taxable investment accounts see if it makes sense to sell and offset them against any capital gains you've realized this year. Again, consult your experts to make sure you’re making the most tax-efficient decision.
Prepay property taxes: If it makes sense to accelerate that deduction based on your tax advisor’s opinion, pay those early 2010 taxes before the end of the year.
Prepay state income taxes: Again, if it makes sense based on your tax situation, consider making a fourth-quarter estimated state tax payment due in January before the end of the year to accelerate the deduction.
Plan a stock donation to charity: If you have stock with a large unrealized capital gain that you’ve held longer than a year, you can give that stock to a qualified charity and claim a deduction for the current fair market value of the security. The deduction is limited however to 30% of adjusted gross income. Any amounts over this can be carried forward 5 years. If you have a stock with an unrealized capital loss, do the opposite – sell the stock, claim the capital loss, then donate the resulting cash proceeds to charity. This is actually better than just donating cash, because you get the same deduction and never have to pay the capital gains taxes from the appreciated security, or you can take a current deduction if you have a loss. A similar donation to a donor-advised fund can provide the same current benefit while allowing you to take your time in appointing the specific charity to ultimately receive the gift.
Make sure donations are documented: You must have a either a receipt or a canceled check to back up any contribution, regardless of the amount, and you can’t simply give away junk and state a “like new” value for it. If you don't have such a written record, the IRS will disallow the write-off if the lack of proper record keeping is discovered in an audit. Also, you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution.
Look for breaks on student-loan interest: If parents pay back a child's student loan, the IRS treats it as though the money was given to the child, who then paid the debt. A child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad assuming they meet the income test. And he or she doesn't have to itemize their deductions to use this money-saver.
Check those work-related moving expenses: If you moved due to a change in your job or business location, you may be able to deduct certain moving expenses. There are two tests. The distance test requires that the new job be at least 50 miles farther from your old home than your old job location was from your old home. The second is the time test, which means you must work for at least 39 weeks during the first 12 months right after you arrive in the general location of your new job. Self-employed people have to work full-time for at least 39 weeks during the first 12 months for a total 78 weeks during the first 24 months after they arrive in the qualified location.
November 2010 — This column is provided by the Financial Planning Association® (FPA®) of Puget Sound, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Puget Sound if you use this column in whole or in part.
The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.
No comments:
Post a Comment