It’s the last week of 2009 and you’re likely planning your New Year’s celebration, not your tax strategies.
However, though good tax planning can take weeks and even months, there are some last-minute things you can do now to lower your 2009 tax bill. Later in this column, I’ll even touch on a few items to consider after the clock strikes midnight.
Make charitable contributions.
Taxpayers have until Dec. 31 to make tax-deductible donations to charitable organizations. But, to claim the deduction on their 2009 returns, they must itemize their deductions and be able to substantiate the donation.
For monetary gifts less than $250, a bank record or written acknowledgment from the charity is acceptable. For financial gifts of $250 or more, written acknowledgement from the organization is required.
Clothing, household goods or other donated items must be in good used condition to qualify for the deduction.
Pay 2010 spring tuition bills.
Taxpayers who pay spring 2010 tuition bills now for themselves, spouses or dependents, may be eligible for education incentives that can lower their tax bills.
The expanded Hope Credit is worth up to $2,500 per student for the first four years of college education. The Lifetime Learning Credit is worth up to $2,000 per taxpayer for qualified higher education expenses such as tuition or books. People who don’t qualify for either credit may be eligible for a deduction of up to $4,000 for higher education tuition and fees.
Sell stocks.
Taxpayers with large capital gains this year may want to sell some stock to generate a loss before year’s end. Doing so could reduce the amount of tax paid.
But, if a stock is sold to generate a loss, the identical stock cannot be purchased within 30 days of the sale that generated the loss. Contact your tax professional to determine if this strategy is beneficial to your financial situation.
Pay deductions early.
Consider paying December mortgage and real estate property tax bills in 2009 even if they’re not due until January. Before doing so, though, people should estimate their 2010 taxes to ensure early payment won’t increase next year’s tax burden.
As you begin your tax planning in early 2010, there are several things to keep in mind as the new year begins. If you were unemployed in 2009, make sure you’re not one of the eight in 10 Americans who don’t know how their unemployment benefits and expenditures will affect their taxes.
The 2009 Recovery Act exempts the first $2,400 of unemployment benefits earned in 2009 from federal taxes, but anything over that amount is federally taxable. However, the $2,400 of unemployment which is not subject to federal tax is fully taxable in Massachusetts.
The unemployed should make sure they have a record of their 2009 job search expenses because they can help reduce tax liability. Taxpayers must itemize these expenses as part of their miscellaneous deductions to claim them on their tax return. Qualified expenses may include: resume development, professional placement services, mileage for driving to job interviews or other un-reimbursed travel such as airfare.
Another key part of your life planning, which also affects your taxes, is buying a home. If you think you’ve missed out on the First-Time Homebuyer Credit of $8,000, don’t despair. The deadline for this tax credit has been extended from Nov. 30, 2009, to April 30, 2010.
Also, a special provision gives taxpayers two extra months to close if they’ve entered into a contract by April 30, 2010. There’s also a tax credit worth up to $6,500 for existing homeowners in the market for a new home. Existing homeowners must have owned or lived in their current home continuously for five of the last eight years to claim the credit.
A house must be valued at less than $800,000 to be eligible for the new $6,500 or the $8,000 credit for first-time homebuyers. Taxpayers can claim the credit on their 2009 or 2010 tax returns.
A completed settlement statement must be attached to the return in order to claim the credit. While the First-Time Homebuyer credit does not affect your Massachusetts return, owning a home can trigger many other tax benefits.
Finally, if you’re an expectant mother with a due date around the first of the year, you might want to cross your fingers for an early delivery. Children born before Jan. 1, 2010, grant you a $3,650 tax exemption, per child, on your 2009 filing.
There’s a lot to consider before the end of the year regarding your 2009 taxes, but by paying some expenses now, taxpayers may actually save money in April. While there’s still time to take advantage of these last-minute strategies, you’ll need to act before year’s end to lower your 2009 tax bills.
Taxpayers should consult their tax professional to ensure they receive all the credits and deductions available to them.
Marc S. Krell is a senior tax adviser with H&R Block based in Framingham. He can be reached at marc.krell@tax.hrblock.com, or by calling 508-877-6528.
