As 2010 comes to a close, take the time to get organized and review these strategies that could help you improve your bottom line. Breathe easier with oXYGen Financial!
- Make sure you use up and max out your Flexible Spending Account at work. If you have put aside pre-tax dollars in your employer’s flexible spending account plan for medical or dental expenses, make sure to use it by the end of the year or your lose it! If you know you have upcoming medical and/or dental expenses, it may be wise to fund more dollars in your flexible spending account if you haven’t reached the yearly cap. This will allow you the opportunity to reduce your taxable income for 2009.
- Match your gains and losses for capital gain taxes in 2010. You should review both your capital gains and losses for all of 2010. This may include gains and losses for stock, bond, or mutual funds that you have in your non retirement portfolio. This is especially true because this may be the last year for some time coming that capital gains rate is only 15%. In addition, you may have other investment positions where you are still have a capital loss, or you are carrying forward a capital loss from 2009. This may be a great opportunity to examine your portfolio and take your capital gains on winners, and match those gains against the capital losses on winners. You can match an unlimited amount of gains against losses. Once losses exceed gains, you can only deduct up to $3,000 of losses against ordinary income in a given tax year.
- Be careful about buying an actively managed mutual fund with a lot of turnover. Normally, mutual funds will distribute their capital gains in the November or December time frame. You may have non-qualified funds that you are considering investing or buying a mutual fund. The later in the year it is, the more likely you are to get the distribution of gains from the mutual fund even though you may have owned the fund for short period of time. Please read the applicable mutual fund prospectus for additional information. If you have carry forward losses, this may be a way to get a capital gain if you need one.
- Did your employer reimburse you? This is a great time of year to look at all of the money you spent on job related items that your employer did not reimburse. With so many employers cutting back, this may represent an opportunity for you to deduct these expenses, including mileage (not regular commuting expense) from your automobile. Get yourself familiarized with form 2106 to learn all of the potential deductions you can take. (source www.irs.gov)
- If you are self-employed, it is not too late to open up a retirement plan. If you started a business in 2009 and made a profit, there is still an opportunity to set up different types of retirement plans that will allow you to make a contribution. These contributions could reduce your taxable income dollar for dollar for what you put into the plan. Self employed plans such as an SEP, Keogh, and Money Purchase Plan are all retirement plans that you can look at setting up before year end.
- Go Green. There are still great tax credits in 2010 for making an investment to be more energy conscious at your home.
Here are the recommended guidelines:
- must be “placed in service” from January 1, 2009 through December 31, 2010. If you didn’t do this in 2009, you should consider for 2010
- must be for taxpayer’s principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes qualify)
- $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
- must have a Manufacturer Certification Statement to qualify
- for record keeping, save your receipts and the Manufacturer Certification Statement
- improvements made in 2010 will be claimed on your 2010 taxes (filed by April 15, 2011)
- If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaics, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters. More.
- Max out your contributions at your 401(k) plan. If you have built up a healthy cash reserve, one thing you can consider doing is to lower your paycheck at work by increasing your pre-tax contributions to your 401(k) at work. For those under 50, you can put up to $16,500, and for those over 50 you can put up to $22,000 away in 2009. These pre-tax deductions can help you lower your overall tax bill, and while your current paycheck will be lower you will be able to use your cash reserve to meet ends for the last few months of the year.
- Look at a non-deductible IRA and converting to a Roth IRA. Even if you don’t qualify to make Roth IRA contributions or traditional IRA contributions on a before-tax basis, you can still make after-tax contributions to a traditional IRA. In this tax year (2010), you can immediately convert those traditional non-deductible IRA contributions to a Roth IRA. For those under 50 years old, this could allow you in 2010 to put away $5,000 and for those over 50 you could put away up to $6,000.
- Look at doing a Roth IRA Conversion. Back in May of 2006 President Bush signed a $70 billion tax cut provision that changed the eligibility rules for Roth IRA conversions. Starting this year in 2010, taxpayers with a modified adjusted gross income of more than $100,000 can convert a traditional IRA to a Roth IRA. If you convert, you can elect to include the conversion income in 2010 or spread the income tax bite over two years in 2011 and 2012. Removing the Roth IRA conversion cap doesn’t mean anyone can fund a Roth IRA, but it does mean that anyone can convert an existing IRA to a Roth IRA. With the Small Business Jobs and Credit Act, you may also look at converting your 401(k) to a Roth 401(k) if you qualify under all of the tax rules.
- Clean out your closets. People always give away cash. Yet, we see families all the time who don’t clean out their house, and give away non-cash items to charity. There are many websites including www.satruck.com that can give you an idea of what your bags of charitable goodies are worth.
800-355-9318 for a free consultation or Click Here to Schedule A FREE Online Consultation.
The best tax management strategy to take before year end will depend on your situation. Come visit us at oXYGen Financial or sit down with a qualified CPA or financial advisor.
Kile Lewis, CRPC® and Ted Jenkin, CFP® co-CEO’s oXYGen Financial
800-355-9318 for a free consultation – Click Here to Schedule A FREE Consultation.
oXYGen Financial, Inc. co-CEO’s Kile Lewis and Ted Jenkin are two of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation. Learn more by visiting www.oxygenfinancial.net to see what the professionals at oXYGen Financial can do for you.
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