The last few months of the year are a great time to review the year we’ve had and plan ahead for 2010. One of the most essentially areas of planning that we should be thinking about over the last two months of the year is tax planning. Many time people fail to think much about tax planning at the end of a year because taxes aren’t filed until several months into the following year. In addition, the holidays are a busy time of year of no one wants to think about tax planning as they’re celebrating with friends and family. However, the decisions you make now can have a big impact on the amount you pay of the refund you receive when you file your taxes next spring.
The tax code is always changing so it’s a good idea to try to stay up to date on where write-offs can be found. Some of these ideas are standbys that can be used every year while others are newer areas in the tax code.
– Contribute To Retirement Accounts: This is something you should be making an effort to do each year, but a tough economy makes each contribution to an IRA or a 401K a little tougher to make. Still, besides the core benefit of having an accumulation of funds to use when you retire, retirement accounts allow a taxpayer to defer the taxes on a portion of their income until later in life. This will reduce your 2009 tax bill and it’s one of the few tax planning areas that can be done after the end of 2009, as contributions for this year can be made anytime before the tax deadline in 2010.
– Go Green: The tax code offers tax credits for a variety of upgrades you can make in your home to make it a more energy efficient property. Consider replacing old appliances or windows. If these are upgrades you plan to make soon anyway, do it before the year ends to take advantage of the tax credit this year.
– Cut Your Losses: If you have investments in taxable accounts that have lost money since you bought them, consider selling before the end of the year. No one likes to make the paper losses permanent by selling, but unless you have strong feelings about that investment recovering in the near future, there’s little reason not to at least get the tax benefit from the loss. The money can be reinvested in something similar, or if you like a particular holding you can buy it back after 30 days without any tax consequences.
– Share the Wealth: 2009 has been a very difficult year for millions of people who have lost jobs, seen their income reduced, lost their homes, or have struggled through the recession financially. Consider making a donation before the end of the year that can help those in need and give you a write off to use in 2010. A donation always goes a long way, and this year gifting strategies will have an especially large impact for those in need.
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