5 Opportunities to Save Taxes Before Year End

1. IRA or Pension Plan Conversion to Roth IRA- in 2010 everyone is allowed to convert their IRA’s and pension plans to Roth IRA’s. For 2010 conversions you can choose to pay the tax 50 % on 2011 and 50 % on 2012 tax returns. If for some reason you decide you don’t want to do the conversion you can change your mind and put the investments back into your traditional IRA or 401(k) if you do it by October 15, 2011.

2. Charitable Contributions- If you are planning to donate to your favorite charity, do it by year end. If you do a Roth IRA conversion, think of offsetting the extra income with a charitable contribution. And don’t forget to clean out your closets for Goodwill- but keep a detailed list and proof like photos that the items were in good or better condition.

3. Nonbusiness Energy Property Credit- This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass, energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs all qualify, along with labor costs for installing certain items.

4. American Opportunity Credit Helps Pay for First Four Years of College- More parents and students can use a federal education credit to offset part of the cost of college under the American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

5. Residential Energy Efficient Property Credit- This nonrefundable energy tax credit will help individuals pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Changes to the law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property.

5 Things To Do Before Year End To Reduce Taxes

1. Purchase equipment for your business- You can take a deduction of 50% of the cost of furniture, fixtures & equipment purchased & placed in service in your business before 12/31/10. This provision may disappear next year!
2. Start a Business- If you don’t have a business- start one! Even if you have a W-2 job, you can have a business on the side. It must be a valid business that you spend time on. Then you can deduct expenses related to that activity to offset wage income. See article below for more information.
3. Charitable Donations- Yes, the age old idea of cleaning out your closets and donating to Goodwill before the end of the year. But now you must be able to prove the items were in “good” condition. Take pictures, keep detailed lists and get receipts.
4. Incorporate Your Business- If you are going to receive a lot of income before the end of the year think of incorporating and transferring the income to either a C corporation or an S corporation. Both have ways to save you taxes. Call us for help.
5. Pay Both Installments of Your Property Taxes In December- Remember the only way this will help is if your income is going to be lower next year than this year. If you have high income this year due to bonuses or commissions, pay all of the property tax and take the deduction on 2010.