We have found some useful tips on how to save money on your taxes this year! Be sure to contact your accountant or financial planner to see what would be best for you.
For those who purchased a home this year and are eligible for the 1st time home buyer tax credit, be sure to file!
Top Off Retirement Accounts
Taxpayers can boost their retirement savings in a tax-efficient manner by contributing up to $5,000 to an Individual Retirement Account or Roth IRA if they are under 50 or $6,000 if they are 50 or older.
Claim the Saver’s Credit
Lower-income taxpayers should remember to take the Saver’s Credit for contributions they made to an employer-sponsored retirement plan, such as a 401(k) plan, or individual retirement vehicles, such as a traditional or Roth IRA. Taxpayers get a credit for up to half of what they contribute, although the maximum credit is $1,000 or $2,000 for couples.
Convert a Traditional IRA to a Roth IRA
Taxpayers who convert a traditional IRA to a Roth IRA in 2010 do not have to pay the tax due on the conversion in 2010. They can decide in 2011 if they want to defer 50 percent of the income to 2011 and 50 percent to 2012. While taxpayers can delay the payment decision as late as Oct. 15, 2011, they have to pay the tax when their taxes are due in April 2011.
Contribute to Charities Tax Free
The new law allows taxpayers who are 70½ or older to make contributions to charitable organizations directly from IRAs without paying tax on the amount contributed from the IRA. Taxpayers can make these contributions during January of 2011 and have them apply to their 2010 taxes. Each taxpayer can contribute up to $100,000 for 2010 and 2011. Contributions for 2010 can be made until the due date of the 2010 return, which is April 18 for most taxpayers filing federal tax returns.
Offset Education Costs
Among the tax rules that taxpayers can use to offset 2010 education costs are the following:
• The American Opportunity Credit offers eligible taxpayers up to $2,500 per student for qualifying 2010 tuition and expenses, including books and computer equipment. The American Opportunity Credit can be used by students for the first four years of post-secondary education expenses. Importantly, taxpayers who pay no taxes may qualify for a refund of up to $1,000. The new tax law extends the American Opportunity Credit through 2012.
• An “above-the-line” deduction offers eligible taxpayers as much as $2,500 for interest paid on student loans, even if they don’t itemize deductions. The new tax law extends this deduction and increases the phase-out range.
• Section 529 college savings plans give parents, grandparents and others a way to contribute after-tax dollars in order to have earnings and interest accumulate free of federal, and in some cases, state taxes. No federal income taxes are paid on withdrawals from the accounts.
Take Tax Credits for Energy-Efficient Home Improvements
Homeowners who installed certain energy-efficient heating and air conditioning systems, water heaters, doors and windows, insulation and roofs are eligible to receive a credit to help reduce the costs. Taxpayers who did not take advantage of the credit in 2010 have an opportunity to do so in 2011, under the new tax law. A credit is available for homeowners who invest in green energy equipment, too. Such equipment includes solar electric systems, solar hot water heaters, geothermal heat pumps and wind turbines.
Consider Deducting State and Local Sales Taxes
Taxpayers can choose to take an itemized deduction for state and local general sales taxes on their 2010 taxes instead of the itemized deduction for state and local income taxes.
Taking a deduction for sales taxes can mean a lower tax bill for taxpayers who make such a major purchase as a motor vehicle during the year or who live in states that do not have an income tax. The new tax law extends this option through 2011.
Choose Best Estate Tax Method
Taxpayers, who inherited property in 2010 when no estate tax applies, get nine months under the new tax law to choose whether to use the new estate tax rules (35 percent top rate and $5 million exemption) or no estate tax with the estate’s assets generally being subject to the carryover basis rules. Carryover basis rules result in a transfer of the decedent’s adjusted basis (typically, the owner’s original purchase price) to the beneficiaries. Historically, the basis of an estate’s assets have been established using stepped-up basis rules, which consider basis to be the fair market value of the assets at the time of the owner’s death.
Defer Compensation
Since tax rates will remain at current levels for the next two years, taxpayers may want to consider deferring payments into 2011 from such compensation sources as pensions, retirement plans and stock options.
