Although I never recommend waiting until year end to start tax planning, before you slide into “holiday mode,” there are a number of steps you can take before year end to save money. Here are some last minute tax tips to consider:
•Higher education expenses: Depending upon your adjusted gross income (AGI), taxpayers can claim up to $4,000 of deductions for college tuition and fees. In addition, up to $2,500 of credits are available for higher education expenses, if you qualify.
•Mortgage insurance deduction: Borrowers with AGI's up to $100,000 may be able to treat qualified mortgage insurance as home mortgage interest, which means that 100% of 2011 premiums may be deductible.
•Energy efficiency upgrades: If you make energy efficiency improvements to your home (new windows, insulation, high efficiency furnaces, water heaters, etc.) before the end of the year, you may be eligible for a tax credit of 10% of the cost, up to a lifetime maximum of $500.
•Classroom deduction for teachers: K-12 educators who work at least 900 hours during the school year can claim an above-the-line deduction of up to $250 of any unreimbursed expenses (books, supplies, etc.) used in the classroom.
•Give appreciated stock or fund shares to charity: Donate appreciated securities (stocks, bonds or mutual funds) to a charity and you will receive a deduction for current market value (not just what you paid for them) and avoid taxes on the accumulated gains.
•Take advantage of low capital gains rates: It may make sense to sell appreciated securities now and lock in your gains while the current top tax rate is at a historic low of 15%. However, if you are in the 10% or 15% bracket, long-term capital gains won't be taxed at all in 2011 and 2012. This is very important as most experts believe that rates will rise in the future. Also, a new 3.8 percent tax on net investment income is set to take effect in 2013 for joint filers with AGI's of $250,000 or more ($200,000 for single filers) so it makes sense to consider locking in gains at this year's lower rate.
•Fully fund your college savings 529 plan: Money saved in 529 programs grows tax-free and withdrawals used to pay for college are tax-free as well. Many states, including NY, also offer state tax deductions for the contributions (a double win).
•Retirement Plan Contributions: For 2011, you can contribute up to $16,500 to a 401(k) plan and up to $5,000 to a traditional or Roth IRA (higher amounts if 50 or older). The deadline for employer plan contributions is Dec. 31st, while you generally have until the due date of your federal income tax return to make 2011 IRA contributions.
Robert F. Joyce is a certified public accountant and financial planner in Yorktown Heights, NY. Robert specializes in tax preparation and planning, bookkeeping services and financial planning for individuals, businesses, estates and trusts.
