Year End Tax Planning
by Patricia B. Cole
As the 2009 year comes to a close, the prudent business professional knows the importance of taking advantage of certain tax saving options. Regardless of whether you are an employee, self-employed or own your own business, you should consider the following options:
· If you are considering making charitable donations, you should make them by the end of the year to take advantage of reducing your taxable income. Just remember charitable donations over $250 must be supported with documentation.
· If you want to give gifts to family members, consider making gifts up to $13,000 per year to an unlimited number of individuals without filing a gift tax return. Just remember that any gifts over $13,000 per year reduce the lifetime gift tax exclusion of $1,000,000 and once you have exhausted your lifetime exclusion then taxes will have to be paid on future gifts.
· Real estate taxes are deductible, so pay your property taxes early so you can deduct them this year.
· You can sell poor performing securities and realize excessive losses which can be offset against gains thereby reducing any capital gains up to $3,000 per year.
· You can consider making bulk purchases of medical supplies to increase your taxable deductions. Buy bulk prescription drugs, eyeglasses, or prepay health insurance premiums and pay down doctor bill payments to utilize greater deductions. Just remember medical expense deductions are limited to the amount exceeding 7-1/2% of your adjusted gross income and only can be used if you itemize your deductions.
· Postponing income or bonuses can be desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
· If you were consider making energy efficient changes to your home do it before the end of the year. There are substantial tax credits available for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home, as these tax credits may not be available next year.
· If you are thinking of buying a hybrid vehicle eligible for a tax credit, check to see if it's eligible for the credit, and, if so, purchase it before year-end.
· If you were thinking of donating a used auto to charity, you may want to inquire whether the charity plans to sell the car or use it in its charitable activities; the latter may yield a bigger deduction for you.
· If you are age 70 1/2 or older, own IRAs (or Roth IRAs), and are thinking of making a charitable gift before year-end, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer can achieve important tax savings.
If you own your own business or your self-employed, you may want to take advantage of some of the following options in reducing your taxable income from the business.
· If you own a businesses you should consider making expenditures that qualify for the up to $133,000 business property expensing option for assets bought and placed in service this year. Purchases of business equipment, supplies, etc., can be used as taxable deductions.
· If you own an interest in a partnership or S corporation you can take advantage of business losses for 2009 if you increase your basis in the entity.
· If you are self-employed or own a small business, you can set up a retirement plan and take advantage of making payments toward the plan, which will reduce your 2009 taxable income.
· Consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc., to bunch into 2008 miscellaneous itemized deductions subject to the 2%-of-AGI floor.
Also you should consider making changes that will reduce your income tax for the 2010 tax year by taking the following actions:
· If you expect to owe state and local income taxes when you file your return next year, ask your employer to increase withholding of state and local taxes before year-end to pull the deduction of those taxes into 2008.
· Retirement plan contributions reduce taxable income. If you are not taking advantage of the full contribution amount, for your plan, considering increasing the amount your employer deducts for 2010 to decrease your taxable income for next year.
· Increase the amount you will be set aside for next year in your employer's health flexible spending account (FSA) especially if you set aside too little for this year. Be sure to include costs for over-the-counter drugs, such as aspirin and antacids.
· If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2009.