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(HealthNewsDigest.com) – NEW YORK, N.Y., – The New York State Society of Certified Public Accountants (NYSSCPA) recommends these Year-end Tax Tips for consumers:
1. Get Organized: Put your tax data together now. Round up receipts and
canceled checks from charities, check your latest brokerage statement for
year-to-date gains or losses, make a checklist of accounts to keep track of
the 1099s when they arrive, get medical receipts and insurance
reimbursement forms in order. Start now, before the last minute rush. It is
much easier to get replacements when you have the time to do so instead of
finding out at the last minute that you’re missing some item that prevents
you from finishing your tax return.
2. Do A Tax Projection: Before the stroke of midnight on December 31st, visit
with your CPA to ask about year-end tax planning moves. By having a tax
projection prepared, you will have several options for minimizing your taxes.
For a myriad of reasons, it is suggested that you have a tax projection
prepared before the end of the year. For the year 2009, taxpayers have been
given a one year deferral on withdrawing the required minimum distributions
from their IRAs, profit sharing and pension plans. When doing your projection,
consider this tax saving tip for the year 2009.
3. Review Your Income and Deductions: The most fundamental year-end tax
move is to adjust the timing of income and deductions. If your income is
high, putting off receiving more income at the end of the year can save
taxes. For example, if you’re close to the line on itemizing deductions,
accelerating payment of deductible expenses such as job hunting expenses or
professional dues might save taxes. It should be noted that different itemized
deductions are subject to different phase-out limits. For example, medical
expenses are subject to a reduction of 7 ½% of adjusted gross income for
regular tax purposes and 10% for AMT.
4. Postpone Income: If you’re in line for a bonus, see if your employer will
hold off writing the check until January. If you own a cash-basis business,
you can time the receipt of income (defer receipt until January) by waiting
near the end of the year to send your December billings. You can’t simply
defer taxes by not depositing checks received in the bank. CAVEAT: If you
expect to be subject to the Alternative Minimum Tax, consider accelerating
income to the current year in an effort to mitigate the negative aspects of
this tax.
5. Fund Your Retirement: Contribute to a deductible Individual Retirement
Account (IRA), if you qualify. The investments grow tax deferred if it is a
conventional IRA; tax-free if it is a “Roth” IRA which has significant other
advantages. The contributions to a Roth IRA, however, are not deductible.
You have until April 15 to open an IRA and make a deductible contribution for
the prior year. If you have a 401K plan at work, make as large a contribution
as you’re allowed to make. The self-employed have alternative retirement
plans to consider, but some of them must be opened by December 31st. This
money can grow to a substantial sum because it is compounded, over time,
tax free. To maximize the growth of your annual IRA contribution, always
make it at the beginning of the year. Remember that there are different
maximum amounts to be contributed depending on whether you are over 50
years old.
6. Pay Deductible Expenses before December 31: Paying your state income
tax estimate before December 31 accelerates your federal deduction. You
can also pay property taxes early, make an extra mortgage payment (the
interest portion is deductible), pay your tax preparer for your year-end
planning meetings or opt to have dental work or elective (deductible) surgery
before the end of the year. (See the discussion of AMT which precedes this
section.) Using a credit card is the same as using cash; so the deduction is
taken in the year the charge is incurred (rather than the year you pay off the
credit card balance).
7. Contribute to Charity: You can make cash contributions or charge them on
your credit card and take a current deduction. If you give appreciated
property to charity, in many cases, you’ll get to deduct the full market value.
You may need an appraisal to determine the value of some property. This tax
year brings new recordkeeping rules into play for cash contributions. You
cannot deduct any cash contribution (no matter how small) unless you keep
a record of the contribution (e.g. a bank record, a canceled check, a bank
copy of a canceled check, or a bank statement) containing the name of the
charity, the date, and the amount) or a written communication from the
charity. This communication must include the name of the charity, date of
the contribution and the amount.
8. Consider Gifts to Children: If you intend to make gifts to children (or other
relatives), do it well before December 31st so that the checks clear. Gifts up
to $13,000 per person need not be reported. This annual gift exclusion for the
year 2010 will be indexed and at the time of this writing is unknown.
However, if you have not made any gifts in 2009, consider making a gift of
$13,000 at the end of 2009 and follow it up with another gift in January, 2010
(for the amount of the annual exclusion that will be in effect for that year).
Such planning will permit the donee to benefit by investing both amounts at
the beginning of 2010 and earn income on the principal for the entire year.
9. Offset Capital Gains: Review your investment portfolio to determine
whether you should sell some “losers” before year-end in order to offset
capital gains you’ve already realized. Capital losses are first netted with
capital gains and then are deductible against ordinary income (limited to
$3,000 a year). You should consider recognizing gains that might not be
taxed because there is a loss that can offset it. In that way, you can
immediately buy back the stock (there is no 30 day waiting period for stocks
sold at a gain).
10. Get Married or Divorced (or Have Children): If you are considering
marriage, consider the tax effects of getting married in December as opposed
to January. You are considered married for the entire year even if you get
married on December 31st. Your new spouse’s income, or lack thereof,
should be considered when doing any tax projections because the net effect
can be significant. Many of the calculations in any income tax return are
driven by the taxpayers’ marital status. Results will vary when considering the
effect on the individual or on the couple. (Additional exemptions and many
more tax benefits accrue to individuals and couples who have procreated.
More information is available from your CPA tax professional.)
For further tax and personal finance tips, visit the Sound Advice section of
the Society’s website. www.nysscpa.org.
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