While most of us are preoccupied with the holiday season, but the tax year is coming quickly to an end. This is your last chance to maximize 2009 deductions and there are some very smart last minute moves that you still can make. Today, I will address what I consider to be the 7 most important end of year tax strategies that should be considered.
1. Defer Income
Many companies provide a year end bonus which is paid out in December. If you don’t need this money, you should ask about deferring it until after January 1. This would be most important for those individuals that would be receiving substantial bonuses (in the thousands). By pushing this income out just a few weeks, it will be considered income for 2010 instead of 2009.
2. Make Charitable Contributions
This is a great time of the year to help out a worthwhile charitable organization. Remember, donations of cash are great but you can also donate property. This would be a perfect time to clean out your garage and closet and make a donation of personal property to charity. This would also apply to a used car or boat that you no longer need. Get your donations in before the end of the year and claim your charitable donation for 2009.
3. Pay Your Jan Mortgage Payment Early
Instead of making your mortgage payment on January 1, consider making it a day or two early. Many people mistakenly believe that it is the payment due date that determines the year that the mortgage interest is deductible. If you make the payment in the month of December, that interest is deductible for the current year. This also applies to your real estate taxes. Pay them prior to the end of the year to be able to claim them on your 2009 tax return.
4. Max Out Medical Expenses
Medical expenses are only deductible to the extent that they exceed 7.5% of your adjusted gross income. If you have had substantial medical expenses this year and are close to reaching the 7.5% deduction floor, you might consider havining any treatments or procedures scheduled for the first part of the year early. Having that surgery or treatment in December as opposed to January could mean hundreds or even thousands in tax deductions.
5. Sell Losing Investments
This is a great time of the year to do some pruning of your investment portfolio. If you sell a losing stock you can take that loss for 2009. Likewise, don’t sell your winners until after January 1. By doing a little bit of ‘housekeeping’ in your investment account, you can really make a big difference in the taxes you will owe in April. Of course, don’t ever buy or sell an investment solely on the basis of the tax consequences. If you would like to get a second opinion on your portfolio, consider our affiliated investment adviser.
6. Business Cash In With End Of Year Purchases
Many people operate a small home based business. Consider stocking up on paper, pens, office supplies, and even some equipment purchases such as a computer or printer prior to year end. By squeezing these expenses into 2009, you will see an immediate impact on your tax picture when you file your 2010 return. Also, this would apply if you own rental property. Pay your January mortgage payment early, pay your real estate taxes, and make any need repairs.
7. Max Out Your 401K
While you can contribute to your IRA all the way up to the date you file your 2009 tax return, the deadline for qualified retirement plans such as 401k’s is the end of the year. You will not only be stashing away some extra money that will grow tax deferred you will also be reducing your income for tax purposes for the current year.
Helping you make the most of God’s money!