As the year draws to a close, it’s time to squeeze in some tax deductions and credits that might save you money come April 17th.
If you are looking to reduce your tax liability, here are some 2011 year-end tax planning tips or options that you may want to consider:
Energy Efficiency Tax Credits
Last year, a rather generous tax credit for smaller energy efficient home improvements expired. For 2011, a $500 credit was implemented to take its place. This credit is a lifetime limit, so if you already maxed out your credit in 2010 or before then you are not eligible. However, if you haven’t claimed a credit for the cost of such home improvements as energy saving windows, insulation, and other upgrades, you can make those improvements now, before the end of the year, to take advantage of the credit.
It is also worth noting that the separate tax credit for installing energy efficient power systems, such as solar, wind and geothermal, will be in effect a little bit longer. If you have been thinking about adding one of these systems, you can get a tax credit for 30% of the cost, with no upper limit.
Harvest Investment Losses
Did some of your stocks turn out to be duds this year? If you have some investment losses, you can actually harvest them now. You can offset any capital gains with your investment losses. Additionally, you can offset some of your other income (such as wage income) with your losses (up to $3k a year, or $1,500 if filing married filing separately). This can help lower your taxable income. If you haven’t already, make sure that you sell before the end of the year, and watch out for the IRS wash sale rule (disallowed losses): You can’t buy back the investment within 30 days of selling it if you want to claim the loss.
Boost Your Retirement Account Contributions
If you haven’t maxed out your retirement account contributions to a traditional IRA, 401(k) or 403(b), you can contribute more pre-tax dollars and get a tax deduction, lowering your taxable income. If you have the cash to spare, make some last-minute donations to reduce your tax liability. You can also contribute more to your Health Savings Account if you haven’t reached your contribution limit, and claim a tax deduction for that.
Contribute to Charity
You can also make a few more charitable contributions. With the holidays coming up, it’s a perfect time to help out in the community. You can make your tax-deductible contribution to a charity, or to your church. Even if don’t have the money to contribute, you can still get a deduction. Take items, still in usable condition, and donate them to the local women’s or children’s shelter, or to the Goodwill, and you can get a deduction for the value of your donation. Just make sure that you get a receipt for any donations of money and goods that you make and file it away.
If you know that you have business expenses coming up, you can make your purchases now, before the year ends. You can offset some of your business income, lowering your tax liability. This can include business travel that you undertake as well as business supplies that you purchase.
Find more information on business tax deductions.
Now is the time to think about how you can spend a little more to reduce what you owe in taxes later. Consider your upcoming needs and expenses, and take steps to decrease what you pay in taxes.