10 Things You Must Do before Year End

10 Things you must do before the year ends to reduce your taxes

  1. Charitable Donations
  2. Flexible Spending Account (FSA)
  3. Mortgage Interest
  4. Real Estate Taxes
  5. Homebuyer Credits
  6. Medical amd Miscellaneous Deductions
  7. Pension or IRA Contributions
  8. Cash Gifts
  9. Capital Gains & Losses
  10. Go Green

Charitable Donations – If you are making donations to the Salvation Army, Goodwill or your church make sure you do it before midnight on Dec 31. Most importantly make sure you have a receipt of your generosity since these contributions may be tax deductible. If you are paying by check or credit card be sure to ask if they will be processing the payment before the end of the year. Don’t go overboard, if a single item has a value of over $500 the IRS may require an appraisal. Consult with your Certified Public Account for information.
Flexible Spending Account (FSA) – Use it or lose it! If you haven’t used the money in your FSA, the IRS allows purchases to be made through March 15th to account. Ask your employer for a debit card for your FSA spending. Make sure your plan allows for it.

Mortgage Interest – Are you still looking for another deduction? Make January of 2010’s mortgage payment in December of 2009. Just don’t forget to add the extra month’s worth of interest onto the IRS Form your mortgage company sends you (Form 1098). This will increase your deductions for the 2009 however you won’t be able to deduct the payment from your 2010. You may want to do the same for interest on your student loan payment.

Real Estate Taxes – Same as above for your real estate taxes. Make your January 2010 real estate tax payment in Dec 2009. If you may be hit with the Alternative Minimum Tax (AMT), don’t pay it since taxes are not a deduction under the AMT.

Homebuyer Credits – If you are a new home owner and have never owned a principal residence in the past three years, you may be eligible. You have to purchase the home before May 1, 2010, and close before July 1, 2010. If that is the case, you can qualify for a 10% refundable credit your purchase price. The credit is maxed out at $8,000. Not a new homeowner? You may qualify if you’ve owned your principal residence for at least five years and buy a new principal residence within the time limits stated above. This credit limit is $6,500. The homebuyer credits phase out for single taxpayers with adjusted gross incomes of $125,000 to $145,000 and for joint filers with incomes of $225,000 to $245,000. If you don’t want to wait until 2010 to cash out on one of these credits, you can claim it on an amended 2008 return, even if the purchase was in 2009.

Medical and Miscellaneous Deductions – Health insurance premiums are deductible as long as you didn’t pay them with your flexible spending account. Medical expenses that exceed 7.5% of your adjusted gross income count. Miscellaneous itemized expenses have to exceed 2% of your AGI. If you think you may not hit those minimums then you can pay some of the professionals you do business with, such as your orthodontist or CPA, before 2009 is over for services you will be using in 2010.

Pension or IRA Contributions – This is very important if you are self-employed. Unless you expect tax rates to increase, you may want to pay your tax “tomorrow” rather than today. If you’re contributing to a retirement plan such as a 401k or a 403b, you can put in $16,500 this year and the same amount in 2010. If you’re 50 or older, you can put in an additional $5,500 as a catch-up contribution.

Cash Gifts – If you will ever be subject to the estate tax, then you should make your 13,000 tax-free gift before the stroke of midnight.

Capital Gains & Losses – If you have capital gains, remember that any net capital losses over the $3,000 allowed on your 2008 tax return should be carried forward to offset those 2009 gains. If you still have net losses, up to $3,000 may be used to offset ordinary income for 2010. If you have net capital gains in your stocks or real estate investments, sell enough of the losers to offset the gains. If you have more losers, sell at least enough to get the $3,000 offset against ordinary income.

Go Green – Buy energy efficient improvements to your home and qualify for a credit of 30% of the cost with a maximum limit of $1,500. This can be for items like more insulation, installing energy-efficient windows, heating and Ac systems also qualify.

The IRS has some more information on deductions at their website.

Originally posted to Blog on 12/28/2009