This week, we're posting advice for year end tax planning. If you think one of the topics could help your tax situation, do additional research or contact your tax professional. We're standing by to answer any questions you've got. --Y&F
Individual taxpayers can deduct sales tax they paid on a new vehicle purchased in 2009. The deduction is available to those who itemize and those that do not (as an addition to the standard deduction). Taxpayers can claim the deduction for multiple vehicles, but the vehicle price is capped at $49,500. Income limits apply: marrieds making over $250k and singles making over $125k do not qualify.
Year end be the time to sell some securities. Stocks that have lost value and stocks that have gained value can be sold for favorable tax treatment, depending on your situation. Capital losses from last year can be used to offset this year's capital gains. If you have losses from this year, they can offset up to $3,000 of other income (the remainder of the loss is carried over to 2010). Talk to your investment advisors and tax professional before selling stock.
Your taxable income can be lowered by contributing money to your individual retirement account (IRA). IRA contributions are tax-deferred, meaning that you don't pay taxes now, but do pay taxes when you withdraw from your IRA. You can contribute up to $5,000 per year; if you are over age 50, the limit rises to $6,000 per year. IRA contributions lower your taxable income dollar for dollar, meaning your tax savings is the contribution * your marginal tax rate. Depending on your income level, you may also qualify for the savers credit, which directly lowers your tax bill.
For taxpayers in college themselves or with dependents in college, paying tuition or buying required supplies can result in tax benefits. Paying tuition now for bills due in January will make the expense claimable for 2009 tax purposes. Buying a computer for a student, if the college requires it (most do), can result in a 20% tax credit (using the Lifetime Learning or Hope credit).