While the tax debate continues in Washington, the more immediate challenge for taxpayers is finding ways to reduce their tax bill for 2010. Fortunately, there are still some smart moves you can make now to potentially reduce your tax bill come April 15 (or earlier!). Following these tips before the New Year arrives can boost your chances of maximizing your refund at tax time:
- Donate to charity: 'Tis the season for giving, and donating to your favorite charities is good for the community and good for boosting your tax refund. Contributions made before year's end to qualifying organizations are tax deductible. Check with the IRS to make sure that your donation qualifies to receive tax-deductible contributions. Don't forget that donated items, including clothing, furniture and toys qualify - as does mileage, if it's part of your charitable work. Make sure you keep receipts to prove the amount and date of your contribution. Use free online tools like It's Deductible to accurately value your donated items.
- Consider selling investments: The first3000 of your losses is deductible against ordinary income. Any losses in excess are carried over to 2011 where you can again write off up to3000.
- Speed up your retirement contributions: Participants in 401(k) retirement plans can contribute16,500 in 2010. If you aren't going to reach that limit and can afford to, additional contributions will save you at tax time. Participants 50 years and older can contribute up to an additional5500. Investing in your retirement plan now allows you to grow your retirement nest egg tax free and get a tax savings now.
- Prepay deductible expenses: Paying your January 2011 mortgage bill by December 31 gives you an extra month's worth of mortgage interest to deduct in your 2010 tax return. The same applies to property taxes if you normally pay those in January.
- Benefit from tax credits: Investing in making your home more energy efficient saves on your monthly utility bills and may qualify for up to1500 in tax credits. So insulating the attic, replacing those drafty windows or purchasing a new furnace may qualify, but don't wait long, this credit ends this year. You can read more at EnergyStar.gov.
- Gifting: Each year Uncle Sam allows you to give any individual a13,000 tax-free gift. If you're married, you and your spouse can combine your gift for a total of26,000. Give to your children and grandchildren and you can actively reduce your future estate taxes, which are scheduled to increase in 2011.
- Review Medical Expenses: You can deduct out-of-pocket medical expenses, including medical insurance premiums, as long as they add up to 7.5% or more of your adjusted gross income. So if you earn75,000, for instance, that's5,625. If you're thinking of getting any elective surgery, that expense, plus other out-of-pocket medical care you paid this year for, could help reduce your taxable income.
Any or all of these simple tips can provide the average taxpayer with real savings on their 2010 tax bill. Despite the temptation to put off tax matters until W-2s arrive in the mail, taking some time before the holidays can provide taxpayers with big savings.
As vice president for consumer advocacy for Intuit's TurboTax business, Bob Meighan works with customers to help ensure TurboTax products meet their needs. A Certified Public Accountant, Meighan holds a bachelor's degree in business administration from the University of North Carolina.