Year-End Tax Tips and Strategies
As the calendar year draws to a close, you may want to put your Christmas and New Year’s preparations to the side for a bit to consider certain tax implications. New taxes are likely to show up over the next few years as America wrestles with its deep debt and as the impact of national healthcare kicks in.
To prepare for a likely change in tax policy, there are a few tips and strategies you can now to ear your tax burden this year.
If you itemize your tax return, you can take a legitimate tax deduction for contributions made to qualified organizations. This requires you to use Form 1040 and Schedule A to itemize your deductions.
Donations of any amount, whether paid with a check or in cash can be deducted. Checks offer proof of your donation while cash can be a bit harder to track. If you make regular cash contributions to an organization, get a receipt for your contributions. A statement by your church, a civic organization or other qualified group attesting to your giving is sufficient. A statement is required for all donations of $250 or more.
Keep in mind that gifts do not have to involve cash. Donating clothes or household items can be accomplished by declaring its fair market value. Check out IRS Tax Tip 2011-57 for more information.
If you have the means and want to give some of your money away, you can avoid a gift tax by gradually making contributions of up to $13,000 annually to as many people as you like. These people can be your children, your grandchildren or any individual you want to help.
The IRS permits taxpayers to give as much as $5 million in their lifetimes, a move that can help avoid a 35 percent gift tax. Reduce your taxable estate by strategically giving gifts before the year comes to a close.
Opportunity knocks with the American Opportunity Tax Credit. That credit comes to and end on December 31, 2012, a $2,500 tax credit for most Americans earning $80,000 or less this year. If you file jointly, then your income level is $160,000.
Even wealthy Americans may be able to benefit from the AOTC. The tax credit is adjusted for income, gradually phasing out as your income increases.
Besides taking every available tax credit that you can find, you may want to accelerate your income before the year comes to an end. Clearly, time is not on your side, but if you are a high wealth individual you may want to pay yourself a bit more this year and bit less next year.
Unfortunately, Congress and the president have yet to come to an agreement on tax policy, therefore it is hard to determine who will pay more and how much. Chances are excellent that if your income is $250,000 or more, taxes will be raised on you despite Obama’s claim that he plans to raise taxes on millionaires and billionaires only.
If you are not sure what action you should take these last two weeks of the year, a call to your tax advisor or tax accountant may be in order. Your tax software may offer some help too, if you have already ordered and downloaded this year’s version.