Best Year-End Tax Planning Moves

What are the best year end tax planning moves to make? Read this article and you'll be sure to have a fatter wallet next spring.
Picture of Mark Kenison, CFP, EA

Mark Kenison, CFP, EA

Here’s another great article from US News about year-end tax planning that I thought was great. Kimberly Palmer wrote this, so I can’t take credit for it, but I can share it with all of you!

Do your tax planning now and you'll be glad you did come April 15th

Fall is the best time for last-minute tax planning because you still have plenty of time to meet end-of-the-year deadlines that can minimize your tax bill in the spring. Follow these five tips and you might even get some money back from Uncle Sam.

Bulk up your retirement contributions.

You can contribute up to $16,500 into your 401(k) in 2010; for those 50 or older, the limit is $22,000. If you’re nowhere close to that amount, you can ramp up your contributions to take advantage of tax-advantaged accounts. The same goes for Roth IRAs and traditional IRAs. If you want to max out your retirement savings, now is the time to start putting more money away. (You can contribute up to the 2010 limit until April 15, 2011.)

Check out any one-time benefits that might apply.

Investments in certain energy-efficient products, such as a new HVAC system, windows, or insulation, might be eligible for tax credits (for 30 percent of the cost, up to $1,500). You can check to see if you’ve made any eligible investments–or if you want to before the end of the year–by visiting www.energysavers.gov. If you purchased your first home this year, you might be eligible for the homebuyers credit of up to $8,000. Check the IRS website (www.irs.gov) to see if you might qualify and how you need to prepare. Saving and organizing all relevant paperwork is the first step.

Delay deductions.

Because tax experts say tax increases are likely in the future, they recommend saving big deductions until next year, if possible. So if you’re planning to make a sizable charitable contribution, for example, you might want to hold off for the sake of your tax bill. Similarly, if you have flexibility over when you receive income, you might want to get as much in the bank before December 31 so it counts as income in 2010, before any potential tax increases.

Check that you’ve been paying enough taxes.

If you received income beyond your usual paycheck because of freelance work or income from a side-business, then you might end up owing a lot of money in April. You’re also at greater risk if you got married this year and earn a similar, relatively high salary to your spouse. That’s because of the so-called marriage penalty, which often means dual, high-earning couples owe more when they file taxes jointly than they did when they were single.

People who earn significant chunks of their salary in cash also need to make sure they’re saving enough of that cash to pay the appropriate amount of taxes in the spring. The IRS keeps a close eye on people in professions that pay in cash, such as waiters, by using formulas that estimate expected income. If you report less, you could be flagged for an audit–not something you want.

A big tax bill can not only shock your budget–you might owe the government additional fines, too. Check to see if you’ve been paying roughly the correct amount of taxes by reviewing your payroll stubs or other documentation. If you’re going to owe money, prepare by starting to save now.

Keep track of important receipts.

If you run your own business, are self-employed, or have been spending money on educational costs to boost your career, then many of your expenses may be tax-deductible. Make sure you put your receipts in an easy-to-find filing system so you can claim them when you file your taxes next year. If your employer offers flexible spending accounts for healthcare costs, you also want to be sure to keep eligible receipts for doctor visits, pharmaceuticals, and other health-related costs. You often have until April 15 to file those claims.

Tax planning might not be as fun as Thanksgiving dinner & football games, but it can get you a much bigger wallet in the spring.

Ready to help you with whatever finance problem you have

0 thoughts on “Best Year-End Tax Planning Moves”

  1. Mark,

    Thanks for the post! I can’t stress the importance of tracking your important receipts. Too often this goes ignored when individuals and companies can take advantage of tax-deductible expenses. And yes– it’s not as fun as football games… unfortunately. We’re kicking off our blog soon, as well. Thanks for the insight and keep it up.

    SC

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