Taxes are so nasty. I mean, really! As we make more money, it seems more money is taxed. What’s worse is if you’re single! It seems like singles are in the highest tax bracket. And if you don’t have any dependents then it almost seems like you’re screwed with taxes. But, alas! There are some ways to cope with this matter. Below are seven tax tips to help you minimize your tax liability (in other words, the amount of taxes you will owe) either by tax deductions or tax credit. No matter which one may apply to you, always get a tax advisor involved to make sure you are eligible and it’s done correctly! You know Uncle Sam doesn’t like to be owed money and, at the sametime, you don’t want to get back one penny less in your refund.
1. Implement an investment loss strategy: According to Yahoo! Finance, the S&P 500 index value was 931.80 on Jan 2, 2009 and 1114.05 on Dec 21, 2009. During this time the market had its ups and downs. In March 2009, it hit its lowest at around 676! The market definitely had quite a volatile year. So, you may be able to take advantage of that. Tax laws allow you to offset your capital gains and deduct capital losses from your taxable income. By law, you are allowed to deduct from your taxable income your capital losses. Depending on what you bought or sold in your investment portfolio (not your retirement accounts) you may want to consider the following:
If you have any money-loser investments consider getting rid of them. By selling your loser investments you will be able to offset your big winners. or,
Sell some of your big winners to offset your money-loser investments.You can deduct capital loss from your taxable income up to $3,000 in one year. And additional capital loss that you may have can be carried over the following years.Moneylicious Awareness:
Before you decide to use this strategy on mutual funds, be aware of any penalties for selling the fund too early. You may be holding shares in a mutual fund that could incur extra fee because you sold it in a shorter time period. For example, Class B mutual funds have a back-end fee that will decrease over a certain time period, say 5 years.
Also be aware of the long-term capital gain tax cut. Under the Tax Increase Prevention and Reconciliation Act of 2005 (which was enacted on May 17, 2006), the maximum long-term capital gains will continue to be taxed at a maximum rate of 15 percent through 2010. And for those of you who fall in the 10 and 15 percent tax brackets, the long-term capital gain tax rate nada…zilch…zero!
Last thing to be aware of is the Wash Sale Rule. Be familiar with this rule. If you claim a loss from the sale of one of your investments you can’t buy the exact same investment without waiting 30 days. In addition, you couldn’t have bought that investment 30 days before you sold it to claim the loss. So, if you are looking to repurchase the identical investment wait at least 31 days.
2. Contribute to your retirement plans: As you may already know, you contributions to your Traditional IRA (max contribution is $5,000) and defined contributions plans, such as a 401(k), 403(b), and/or 457 plans (max contribution is $16,500) is a tax deduction.
3. Donate to qualified 501(c)(3) organization: Head to your closet and drawers and throw out what you don’t use anymore. All those valuable clothing and shoes and whatever else, you can donate them. Keep strict records, such as the fair market value of the goods you donated and a written acknowledgement from the charity stating they received it. If you are donating cash, make sure you keep records of that as well. According the IRS rules, if you donate more than $250 you will not be allowed to deduct without supporting documentation. By the way, if any of you have a car you don’t need worth more than $500, you can contribute your car. Again, have records acknowledging your donation. Oh, one more thing, I know some of you may have lend money to your friends and may be thinking you can claim as a contribution, but you can’t…trust me, I looked into it!
4. New Car Purchase: Under the American Recovery & Reinvestment Act of 2009 (ARRA), you can deduct state, local sales and excise taxes for a qualified new vehicle purchased from Feb. 16, 2009 and Dec. 31, 2009 up to $49,500 (I guess the extra $500 to equal $50,000 would have
4. New Car Purchase: Under the American Recovery & Reinvestment Act of 2009 (ARRA), you can deduct state, local sales and excise taxes for a qualified new vehicle purchased from Feb. 16, 2009 and Dec. 31, 2009 up to $49,500 (I guess the extra $500 to equal $50,000 would have been to much for the government). The car doesn’t have to be a new model, but you do have to be the first owner of the car. Technically, you could buy a 2007 model car as long as you are the first owner. If you happen to live in a state that doesn’t have sales tax (lucky you) you will be entitled to other qualifying fee/taxes assessed on the purchase of your car. As a single, sexy, individual the deduction is reduced if you modified adjusted gross income (MAGI) is between $125,000 and $135,000 while joint filers have a MAGI between $250,000 and $260,000.
5. Moving Expenses: If you had to move because of a job, you can deduct the cost of moving as long as the job was at least 50 miles from where you lived.
6. Hope Credit and Student Loan Interest: For the Hope Credit, you may be eligible to claim up to $1,800. Keep in mind you will apply the Hope Credit to your tax liability. For the student loan interest, you may be eligible to deduct from your income up to $2,500. 7. Homebuyer tax credit: If you are thinking of buying a home it’s not too late. The $8,000 first-time homebuyer tax credit has been extended. For first-time
7. Homebuyer tax credit: If you are thinking of buying a home it’s not too late. The $8,000 first-time homebuyer tax credit has been extended. For first-time homebuyers the home must be purchased by April 30th, 2010. For current homeowners who have lived in the same home (“primary residence”) for at least 5 consecutive years maybe eligible to receive at tax credit of $6,500. For more detailed information go to http://www.irs.gov/newsroom/article/0,,id=215827,00.html regarding the homebuyer tax credit.You only have a couple of weeks left to impact your 2009 tax return. Make sure you got yourself covered.