Tax Tips
Review Your Year-End Tax Plans
Making the right moves now can save you plenty.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
November 17, 2009
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The end of the year is fast approaching, but you can still take steps to lower your 2009 tax bill. Don’t focus just on this year, though. Look ahead to next year as well. That may help you decide whether you should take advantage of certain tax breaks due to expire at the end of this year, such as a sales-tax deduction when you buy a new car, or delay action so you can reap a tax break still available in 2010, such as claiming a tax credit of up to $1,500 for installing energy-efficient home improvements.
In general, it makes sense to accelerate as many deductible expenses into this year as possible to reduce the income that’s taxed on your 2009 return. But that’s not always the case. If you expect to be in a higher tax bracket next year, for example, you may be better off postponing some deductible expenses until 2010, when they will be worth more.
Those who itemize have plenty of leeway when it comes to shifting deductions. Start with state and local income taxes. Mail your January estimated payment in December and you can claim a deduction for the payment this year, not in 2010. (Warning: this doesn’t work if you’re subject to the alternative minimum tax. State taxes aren’t deducted under the AMT, so there’s no benefit in accelerating the payment.) Or, make your January 2010 home-mortgage payment before the end of this year and you can deduct the interest portion in 2009.
Accelerating charitable contributions planned for next year into this year will boost your itemized deductions. Just make sure your mail the check or charge the donation to your credit card by December 31 so the gift counts for 2009. And if you’re close to exceeding the threshold of 7.5% of adjusted gross income for medical expenses, consider getting and paying for elective procedures in 2009.
Sometimes you have to spend money to cash in on certain tax breaks, such as buying a first home or purchasing a new car. But pay close attention to income eligibility limits to make sure you’re able to capture these and other tax breaks. Some incentives, such as the home-energy tax credit, are not tied to your income.
In the coming weeks, we’ll be rolling out a new tax tip every weekday. You can sign up for our to have the best and latest tax information delivered right to your in-box.
Reader Comments (3)
Posted by: Boyd at 11/19/2009 12:03:48 AM
On page 57 of the December 2009 issue of Kiplingers Personal Finance magazine, there is a statement to this effect: [In 2009] taxpayers who find themselves in the 10% or 15% tax bracket may have an opportunity to take advantage of the 0% capital-gains rate and sell assets for a profit tax-free. To qualify, your 2009 taxable income cant exceed $33,950 for individuals I searched the IRS website looking for some bulletin or tax tip describing this provision, and I have come across nothing. So as an experiment, using 2009 TurboTax I generated a hypothetical tax return to determine if I could see evidence of a 0% capital gains tax rate for an individual filer with taxable income under the cutoff, and I could not see that the capital gains were untaxed. Can you provide a web link to an IRS source to corroborate and elaborate on the 0% capital gains tax rate?
Posted by: pension check at 11/24/2009 08:32:59 PM
I live in Jersey City, my pension check will be issued by new york city I'd like to know what state taxes I would be liable to.
Posted by: Tom at 12/10/2009 12:21:50 PM
Boyd, the IRS may be guilty of not publicizing the 0% capital gains rate, but if you examine the Schedule D worksheet, the calculation is there. It's just hard to see, unless you're accustomed to looking at these forms and worksheets. I'm currently training to work for H&R Block this upcoming tax season, and we've been trained on this new provision.