Trim your taxes before the new yearApril 15, the usual date for “tax day,” seems so far away. But doing some quick planning now could potentially lower your tax bill and give you something to be extra thankful for next spring.
April 15, the usual date for “tax day,” seems so far away. But doing some quick planning now could potentially lower your tax bill and give you something to be extra thankful for next spring.
First, because of a holiday in Washington, D.C., the tax deadline for next year has been extended to April 18, 2011. Last minute filers will have three extra days to procrastinate.
Smart taxpayers, however, will take the advice of the tax experts at the Minnesota Society of CPAs (MNCPA) and use the last months of 2010 to get their records in order and prepare for the coming tax season. Even more significantly, individuals and businesses can take action to reduce their 2010 tax bill.
The results of the 2010 elections suggest that the tax cuts passed a decade ago will probably be extended before the end of the year, at least for some individuals. But the uncertainty about that situation makes good advance preparation even more important, so you will be able to respond quickly, if necessary.
Now is the time to plan. Meet with your tax advisor. Take constructive steps that must occur before the end of the calendar year. Avoid costly mistakes caused by last minute filing.
Tips for individuals
• Max out your retirement savings options.
If you are fortunate enough that your employer is still offering a 401(k) plan, be sure to take advantage of it. No 401(k)? Then check out the options available in 2010 for individual retirement accounts (IRA) and Roth IRAs. In 2010 only, taxpayers will have a choice to convert their traditional IRA to a Roth IRA and report the entire amount of the conversion in 2010 or defer taxes by reporting the income ratably over two years, in 2011 and 2012. Consider contributing the maximum allowable as it pertains to your unique financial situation.
• Donate to charity.
If you itemize your deductions and want to take a charitable donation deduction on your 2010 taxes, you need to make the donation by December 31, 2010. If you have been putting off those donations, holiday time is a great time to do some good – for someone else and for your taxes.
• Benefit from losses.
If you have incurred losses on individual stocks, mutual funds or other investments that are not in a retirement account, you can either hold on to what you own in hope that its value will rise in the future or sell it and take a loss on the investment.
• Last call: What expires in 2010.
There are several tax breaks that expire at the end of 2010, so take advantage while you can:
Energy efficient home improvement credit.
Hybrid vehicle tax credit (all models).
Guaranteed 15 percent maximum rate for long-term capital gains.
Child and dependent care tax credit will be reduced starting in 2011.
2010 child tax credit of $1,000 per child will revert to $500 per child in 2011.
Computers as a qualified expense for section 529 college savings plans.
Earned income credit for third child.
Student loan interest deduction is scheduled to change.
American Opportunity tax credit for undergraduate
• Small businesses
Self-employed individuals have more leeway with deductions than other taxpayers. Be sure to structure your business transactions to achieve the most efficient tax results for your business.
Small business options:
Deduct, deduct, deduct. Need new anti-virus software, office supplies or a new computer? Get the items purchased and put into use by December 31, 2010, and take the write-off on your 2010 taxes with IRS Section 179 deductions.
The HIRE Act offers two new tax benefits to employers who hire certain qualified employees. You can benefit from the HIRE Act until December 31, 2010.
Consider delaying or accelerating billings and/or payments. It may be possible to buy equipment on your credit card now, take the deduction, and pay for it next year.
If you are uncertain about the options available to you or have any questions, a CPA can help. Contact the MNCPA at 1-800- 331-4288 or visit the MNCPA’s free CPA Referral Service at www.mncpa.org/referral.
The Minnesota Society of Certified Public Accountants (MNCPA) serves the public interest by advancing the highest standards of ethics and practice within the CPA profession. MNCPA delivers on that promise by offering extensive continuing professional education and resources; advocating for members and the public with regulatory agencies and boards; and mentoring and encouraging the CPAs and business leaders of tomorrow.
Founded in 1904, MNCPA’s 9,400 members work in public accounting, business and industry, government and education.
To locate a CPA, visit www.mncpa.org/referral or call 1-800-331-4288.