Year-end tax moves, December 2011
Monday, November 28, 2011
I know, I know. I've been fixating on year-end tax moves of late. But this is, after all, a tax blog. And 2011 is almost over.
So please indulge me as I hit the tax high notes one more time to kick off the annual Year-end Money Moves series, now in its fifth year.
As is tradition, I'm beginning with eveyone's favorite topic, taxes!
Then the next four days of this week will offer year-end tips on investment, retirement and charitable giving moves, finishing up on Friday with some general financial housekeeping details.
As all y'all already know from your own lives, things seem to cross boundaries. That means that some of the tips on the various designated days will apply to more than one area.
Donating to a charity, for example, has a definite tax advantage for taxpayers who itemize. But I've given that issue its own special day, so you won't it mentioned (beyond this example) in today's tax moves. The same goes for many year-end tips on retirement and investment and yes, general finances.
OK. Enough with the groundwork. It's not rocket science. Today it's taxes, and here goes.
Do a draft tax return
That's right. I'm suggesting you do your annual tax chore more than once. Please don't go! I can explain.
There's no need to fill out every line of your 1040. But you need to look at the general areas on the return while there's still some time to do something about them.
You might discover, for example, that your investments have recovered and you'll be getting a year-end distribution that could push you into a higher tax bracket. You still have a little more than a month to plan for that added income and figure out how to reduce any associate tax bill. I'll have some ideas in tomorrow's investment moves segment that could help out here.
But if you don't look, you won't know.
And it will be a big, and possibly costly, tax surprise when you do your return for real in 2012 when it's too late to do anything about it.
Double check possible deductions
Doing a dry tax return run will give you a good idea of your potential tax deductions.
You'll find out whether you have enough expenses to itemize or if you're close enough to make some deductible expenditures by Dec. 31 instead of next year.
Or you'll discover that the standard deduction is right for your 2011 tax situation, meaning you'll have less paperwork to worry about when you do file.
Don't forget above-the-line deductions. These actually are income adjustments; most are found at the bottom of the long 1040's first page, but some also are on the shorter 1040A, too.
These include things like deductible IRA contributions, money you put into a self-employed retirement plan, moving expenses, student loan interest payments and two write-offs that might not be around next year, the $4,000 tuition and fees deduction and $250 for teachers and other school employees who buy classroom supplies with their own money.
Consider all college costs
Staying in the educational area, you can pay next semester's tuition by Dec. 31 and then claim that cost as a 2011 expense even though you won't be in class until next year.
There also are a couple of education tax credits that might be of use, both for your schooling and your taxes.
The American Opportunity Credit has been extended through 2012. The Lifetime Learning credit can help pay for some of the classes you, though long past your college daze days, took to advance your career.
Let your home help out
Homeownership still offers a lot of tax benefits.
Winter's arrival usually means that we discover a lot of literal gaps in our homes. There still are some energy efficient improvements you can make that will cut your heating and tax bills. The credit is now just $500 and the guidelines are once again more convoluted, but if you and your house qualify, that's money that comes straight off what you might owe the IRS.
You also can boost this tax year's itemized deductions by paying your January mortgage and annual property tax bills by Dec. 31.
Spend your medical FSA money
If you have any money left in your workplace medical flexible spending account, or FSA, use it up by the end of the benefits year. If you don't, you'll lose it.
Some companies offer FSA owners a grace period to March 15 of the next year to spend down the account. If yours does, great. If not, find ways to spend your FSA now.
Assess your AMT danger
Everyone, lawmakers and taxpayers alike, hate the alternative minimum tax (AMT). But it's still around, snaring millions every year.
At least Congress last year passed a patch to keep some out of the AMT net.
Still, even after the amount of money that will trigger this costly parallel tax is bumped up, some taxpayers will find they must pay the AMT. The reason? Many common deductions claimed under the regular tax system aren't allowed under the AMT.
That pesky mock tax return you did will help you find out if you're a possible AMT victim. If so, then you'll know not to waste claiming deductions that won't do you any good.
Adjust your withholding
Yeah, this is a perennial nag reminder. But if your draft tax return indicates that you're going to owe a bit more than you expected, you might also end up facing underpayment penalties.
You can prevent that by adding a bit of extra withholding to your last few 2011 paychecks. But you need to get to your payroll office ASAP with a new W-4.
I hope at least a few of these tax tips can help you hang onto few more dollars at tax-filing time.
I'll see you again tomorrow for Part 2 of the ol' blog's Year-end Money Moves. retirement tips.
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Some great all around tips for tax season, thanks for sharing!
Posted by: Barbara Cruz | Monday, November 28, 2011 at 04:54 PM