Before the year ends, opportunity still exists to plan remaining expenditures. It is also a time to review expenses incurred throughout the year and harvest tax deductions. Here are items that may help in your planning.
For itemizers and non-itemizers alike, deductions may be claimed for the following:
Real estate taxes paid in 2009 (limited to $500 for married filing separately taxpayers and $1000 for married filing jointly)
Sales tax paid for purchase of a new motor vehicle (cars, trucks, motorcycles and motor homes qualify)
Even those claiming the standard deduction may benefit from these deductions. It sweetens the deal for non-itemizers and also benefits those who itemize. The sales tax paid on a new motor vehicle also provides a benefit for those who live in a state that does not collect state income tax.
If you are retired and feeling generous:
You may make a contribution to a charity by making a direct transfer from your traditional IRA to an eligible charity. You will not receive a deduction for the contribution; however, you will not be taxed on the distribution. This may be a way to contribute to your favorite charity even if cash is tight.
If you have kids in college, you have an opportunity to maximize a new credit:
The American Opportunity Credit modifies the Hope Credit. The maximum credit is $2,500 and a portion of the credit is refundable. Expenses eligible for the credit are tuition, fees and books. Room and board do not qualify. The first $2,000 of expenses qualify at 100%, the next $2,000 qualifies at 25%. You may want to pre-pay 2010 tuition now to maximize the benefit and take advantage of this credit. (Income limits do apply)
If you are a first time homebuyer:
The first time homebuyer credit has been extended. If you purchase a principal residence during 2009 and before July 1, 2010 you may claim the credit on your 2009 or 2010 tax return
This valuable credit gets $8000 in the pockets of homebuyers and gives them the opportunity to stimulate the economy by purchasing carpet, furniture or home improvement items or anything else that happens to be on the "wish" list.
If you are a repeat homebuyer:
If you have been in your home for 5 of the last 8 years and are buying another home, you qualify for a $6,500 tax credit
While a move wouldn't be recommended based on this credit alone, if you are in the process of moving anyway and meet the criteria, this is a great credit.
If you made energy efficient home improvements:
If you insulated, put new windows, exterior doors, or a roof, you may qualify for a $1,500 credit. Other items that qualify are water heaters, central air conditioners and furnaces. You can find additional information at www.energystar.gov.
This quirky credit was not available for 2008, but was available in 2007 and resurfaced in 2009.
If you lost your job:
Up to $2,400 of unemployment compensation will not be taxable to you
The 65% COBRA subsidy payments paid by your previous employer are not taxable to you
These are just a few of the tax saving initiatives that may help you save tax dollars. Since the tax code is complex, it is always best practice to get particulars from your tax advisor.
