You might wonder why I've chosen early October to discuss income tax planning. Fall might not be the most obvious time of year to think about taxes, but this is actually an excellent time to review both this year's tax picture and to begin preparing for 2010. You aren't yet distracted by the holidays, and you still have several weeks to implement any changes that should take place before Dec. 31.
Compare your year-to-date tax payments with last year's tax liability. If your expected total 2009 income or deductions will be significantly different from 2008, calculate whether your current withholding or estimated tax payments will be adequate. Although you might not incur a penalty for under-withholding if you cover at least 100 percent of last year's tax liability, you don't want to be surprised with a big tax bill next April. If your income has dramatically declined, you might be paying too much. Adjust your withholding or estimates accordingly. Everyone loves a big tax refund, but especially in difficult times, you can put that money to better use now.
Time is running out to qualify for the federal First-Time Homebuyer Credit. Taxpayers with income below $75,000 (single) or $150,000 (joint) may receive a credit of up to $8,000 for the purchase of a primary residence, if they have not owned a home within the past three years. The closing date on the transaction must occur prior to Dec. 1, 2009.
You have plenty of time to qualify for the federal energy tax credit. Purchases of certain energy-efficient products and other improvements to your primary residence before Dec. 31, 2010 will qualify for a credit of up to $1,500. Tax credits are more valuable than tax deductions, because credits reduce your income tax liability dollar for dollar.
See www.energystar.gov for more information.
This is typically the time of year when employees have an opportunity to make changes to their company benefit selections, such as how much to contribute to 401(k) plans. If your company retirement plan provides for matching contributions, be sure you are deferring at least enough to receive the full match. Doing anything less means you are throwing away free money. Increasing numbers of plans now include Roth-401(k) provisions, which permit employees to designate some or all of their salary deferrals as after-tax Roth contributions.
Although the portion allocated into the Roth is not tax deferred, future qualifying withdrawals will be completely tax free.
Employees of companies that offer tax free flexible spending accounts must decide whether they wish to set aside a portion of their salary on a pre-tax basis for certain types of medical expenses, and specify the dollar amount to allocate.
If you're already participating in such a plan, now is the time to tally the amount you've utilized so far this year.
This information will not only help you estimate the appropriate amount to contribute for next year, but you'll also know how much you have left to spend before the end of 2009.
Since any balances not used before Dec. 31are forfeited, knowing where you stand today gives you time to arrange or rearrange medical or dental appointments.
Before writing off this year's surplus as an expensive mistake, be sure you've submitted receipts for expenses you've already incurred, such as office visit co-pays and prescription deductibles.
If you still have money left in the account, look for creative but legitimate ways to utilize the balance. Medical spending account funds may be used to purchase items such as eyeglasses, non-prescription medications and first aid supplies.
For a more comprehensive list of allowable and non-permissible expenses, see IRS Publication 502 at www.irs.gov/formspubs or call (800) 829-1040.
Since tax laws are so complex, consult with your tax advisor before making any significant changes to be sure they fit your circumstances.
Don't wait until tax filing time to meet, because some strategies might need to be implemented before the end of the year.
No comments:
Post a Comment