You may not like thinking about taxes this far out from April 15, but you like saving money, don't you? To the tax planners go the spoils. So all this week we've been highlighting things you can do now to make the next tax day more bearable, if not enjoyable.
So far, we've covered how to estimate your tax bill for the year to see if you'll be square and how to sell investments strategically. Today's lesson is about maximizing your write-offs. Here are three forward-thinking ways to help bring down your bill:
Bunch deductible expenses. As Beverly Hills CPA Rob Seltzer points out, certain deductions have thresholds. For example, you can only write off medical expenses to the extent that they are in excess of 7.5% of your adjusted gross income. Miscellaneous expenses — which include tax prep fees, unreimbursed employee expenses, job search expenses, investment expenses, and everything else noted here — are subject to a 2% of AGI floor. The middle of the year is a good time to look at what you've spent so far on these to see if you are close to the threshold. If so, “you might try bunching expenses in one year,” Seltzer notes. For example, if your AGI is $100,000, and you have already spent $6,000 on medical costs, you might consider moving up that laser eye surgery you'd been thinking casually about—it now may pay for itself. Even if you doubt you’ll make it to the floor, still keep receipts for potentially deductible expenses. A surprise expense could tip you over the edge.
Consider taking advantage of green credits. Certain energy-efficient air conditioners, boilers, furnaces, roofing, doors, windows, water heaters and insulation qualify for a tax deduction of 30% of the cost up to $1,500. (Note: That max is for a two-year period — 2009 and 2010 — so if you’ve already taken the full amount last year, you won’t be entitled again this year.) If you’re contemplating doing work on your home, says Seltzer, keep these credits in mind. “This isn’t the kind of thing you can scramble to do in December,” says Seltzer. “You should look at doing it now." You can still get some money back for driving green as well: A few hybrid cars , including the 2011 BMW ActiveHybrid 750i, are still eligible for credits up to $3,400 of purchase price. This is the last year to take advantage of hybrid write-offs, by the way.
Plan out charitable contributions. Many of us wait until December to make our charitable contributions for the year, but if you plan ahead, you may be able to give more — after all, you won't also be trying to mete out your money for holiday gifts. (And no doubt, your fave charity could use your cash at an off-peak giving time). But another idea, if you’re charitably inclined, is donate appreciated stock to a charity. You won’t owe capital gains tax, so your gift will be bigger than if you sold the investment, then donated the money. Better yet, you can write off the full appreciated value. So if you bought $500 worth of a certain company’s stock and it’s now worth double, you get $1,000 erased from your taxable income. This is one you definitely can’t do at the last-minute, as “it takes lead time to coordinate,” says Seltzer.
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