Five Tax Moves Now That Could Save You Money in April
1. Max Out Your Retirement Account
Or at least get as close as you can. You can stash $16,500 in your 401(k) this year, and $5,000 in your IRA (if you're 50 or older, you get an extra $5,500 for the 401(k) and an extra $1,000 for the IRA). The 401(k) has to be funded by Dec. 31, but you have until April 15 of next year to fund your IRA. There is a lot of uncertainty about tax rates -- most people think rates will go up over the next few years-- but saving for retirement is one move that always makes sense.
2. Give to Charity
There are countless coat, food, and toy drives going on right now. I saw Salvation Army bell ringers out for the first time this weekend. If you have some cash to spare, or a closet to clean out, now is the time to do it if you want to take a deduction this year. Just be sure to get a receipt, and make sure it specifies the who, what and when, says Bob Meighan, a CPA and VP at TurboTax (INTU). "You need a record of which charity you gave to, what the date was, and if you gave items, a description of what they were." There are some other rules you need to know, as well: If you donate an item worth more than $5,000, you need to get an appraisal. And if all of your non-cash contributions total more than $500, you have to attach IRS Form 8283 to your return.
Finally, if you don't have money or items to donate this year, volunteer your time. Charities tend to need a bit more help during the holidays, and you can deduct mileage if you drive back and forth. This year, the rate is set at 14 cents a mile. It doesn't seem like much, but ask anyone who drives a lot for work and gets reimbursed -- it adds up fast.
3. Look for Credits
Deductions aren't much help if you don't itemize. But credits are: A credit actually lowers your tax bill dollar for dollar, while a deduction lowers your taxable income. One thing you can do now, says Meighan, is take advantage of energy credits, some of which are set to expire at the end of this year. If you make energy-efficient home improvements -- things like new windows and doors, insulation, metal and asphalt roofs or central air conditioners -- on your principal residence, you can get a tax credit of up to 30% of the total amount spent on the home, up to $1,500. Note that these things must be "placed in service" before December 31 -- not just purchased, but installed and available for use.
4. Sell Losing Stocks
Pushing your losers out the door allows you to claim a loss of up to $3,000 in any year, according to Meighan. If you have more than that, you can take $3,000 this year, and roll any excess into next year's return.
5. Plan Ahead
If you're a higher earner -- with an income over $250,000 for families or $200,000 if you're single -- you should have your eye on Congress, says Meighan, and you should already be positioning yourself to make a move if they decide to act prior to the end of the year. That means identifying ways to accelerate income into 2010 and defer deductions into 2011. If you're not sure where you stand, I'd meet with an accountant now to get a grasp on what you can do to improve your situation, if the need arises.