Since our political leadership is still battling over changes to the current tax law, you may want to examine these expiring credits and deductible expenses in order to take advantage of time-sensitive breaks on your 2010 return.
Make Energy Efficient Improvements to Your Home before December 31, 2010. Some home improvements made in 2010 to increase the energy efficiency of your home may have a silver lining at tax time. Adding insulation, energy-efficient exterior windows, and energy-efficient heating and cooling systems may qualify for a tax break. These improvements may qualify for a credit of 30% of their costs up to total of $1,500 for improvements made in 2009 and 2010. Residential energy credits apply to homes, houseboats, mobile homes, condominium, and certain manufactured homes if that is your main home.
Check Your Medical and Health Expenses
If you have a health flexible spending account (FSA) through your employer, increase the amount you set aside for next year. If you have a health savings account (HSA), you can make all contributions for the entire year 2010 by the due date of the return not including extensions.
Figure out your medical expenses to date for 2010 to see if you have enough medical deductions to itemize (over 7.5% of AGI) this year. It’s not too late to schedule additional dentist or eye doctor appointments before the end of the year. It may, instead, make sense to “bunch” medical deductions into one year, and plan ahead for 2011. There are numerous medical costs that are deductible including lasik eye surgery, doctor-prescribed weight loss programs, and capital expenses for ramps, railings, etc. installed in a home to accommodate disabilities. IRS allows the cost of smoking cessation programs as a medical expense, but not the costs of patches and gums that don’t require a prescription. Don’t overlook medical mileage to and from the doctors, hospitals, and the pharmacy.
Add to Your Retirement Accounts Anytime Before April 18, 2011. Some taxpayers may be eligible to claim an IRA deduction even if they are covered by an employer’s retirement plan. The deductible amount for a contribution to a traditional IRA is up to $5,000 per person, up to $6,000 per person if age 50 or older. Workers over 50 can make additional contributions to their SIMPLE IRAs up to $2,500. If you’re self-employed, you can set up an Employee Pension plan and contribute the lesser amount of up to 20% of your net self-employment or $49,000 before April 18th, 2011.
Convert Your Traditional IRA, 401(k), and 403(b) plans to a Roth. The tax due on conversion of these plans to a Roth account can be spread equally over your 2011 and 2012 tax returns or you can elect to pay the entire tax on you 2010 return. When making the determination on when to pay the tax, remember that the reduced tax rates in effect since 2001 are due to expire at the end of 2010
Make Charitable Contributions and Donations. Generally, for individuals, contributions to tax-exempt charitable organizations are limited to 50 percent of the taxpayer’s adjusted gross income for the tax year. Those unused items cluttering closets can be donated to a qualified charity or non-profit organization and deducted as charitable contributions. However, these items must be in good, used condition or better. Document your donations by saving receipts, canceled checks and any letters or correspondence from the charity.
Gifts To Individuals. In the spirit of the holiday season, remember that you can give gifts of up to $13,000 to individuals before the end of the year. This measure will save gift and estate taxes by sheltering them from taxation by the annual gift tax exclusion.
Activate Your Job Search. Job hunting expenses are deductible even when you’re actively employed, as long as the job is in your current field of employment. The costs of travel, mileage to and from job interviews, resume printing and mailings are all deductible as miscellaneous expenses subject to 2% adjusted gross income (AGI) reduction.
Purchases and Expenses to Consider Now
•Make an extra mortgage payment or two: Extra payments in 2010 mean more deductible mortgage interest.
•If you’re self-employed, buy supplies now: Self-employed taxpayers who use the cash method of accounting can pay bills on or before December 31, 2010 and claim the expense on a 2010 return. Stock up on necessary supplies and equipment. Remember to take advantage of the section 179 deduction of up to $800,000 for computers and other big ticket items put into service before the end of this year.
•Pay state and local income taxes now: That way you can deduct them for 2010.