A week or so ago, I was telling a friend that I was working on this piece about year-end tax tips, and she looked at me with a combination of shock and disgust. “Didn’t we just do our taxes?!” she exclaimed.
I’m sure for some of you, the longest break from doing your taxes couldn’t be long enough, and April feels like it was just yesterday. I get it — taxes aren’t fun. I don’t like them either. But there’s no getting out of them, and my theory is this: if we have to do our taxes, we might as well get as much as we can out of them! And if you’re willing to do a few things right now, before 2011 is up, you can actually catch a few breaks.
I reached out to Gil Charney, principal tax researcher at H&R Block, and he gave me some ideas of things to do now that will save you money on your 2011 taxes. Here are a few of my favorite tips:
Go green. Charney told me that the energy property credit will expire at the end of the year, but the “residential energy efficient property” credit will be available through 2016. This means you can get a credit for 30 percent of the cost of alternative energy you use for your home, including solar, wind, fuel cell and geothermal equipment. Also, if you’re in need of a new car, consider going green in that area, too: Charney said that you can get a credit of up to $7,500 for qualified plug-in electric vehicles like the Chevy Volt and Nissan Leaf.
Make a charitable contribution — IF you can itemize. This tip gets thrown around a lot, but it’s important to note that a charitable contribution is only advantageous if you are on the verge of being able to itemize your deductions. If you’re not close to being able to itemize, the contribution you make now [in December] will be ignored and you will only receive the standard deduction.
Contribute to retirement. Any contributions to an IRA can reduce your taxable income for the year. Charney notes that if you increase your payments to a 401(k) or a similar plan, you must do it through a payroll deferral — not by writing a check. Charney also recommends considering a conversion from a traditional IRA to a Roth IRA while tax rates are relatively low and paying the tax in 2011. He says that while rates may not rise in coming years, it can be good to diversify retirement assets between taxable and non-taxable.
Consider selling losing stock. Stock that is sold is a capital loss, and can be used to offset capital gains. However, you should only sell a stock if it is not expected to recover enough to be worth keeping. Charney says that selling a temporarily low stock that’s expected to rise just to lock in a loss may not be in your best interest.
Finally, Charney clued me in on a tax benefit that will expire on December 31, 2011, unless extended by Congress: the educator deduction. This allows eligible educators (K-12) to deduct up to $250 of qualified out-of-pocket classroom expenses. If you’re a teacher and planning on getting supplies for any classes in 2012, buy them in 2011 while the deduction is still allowed.
If legal, accounting, or tax assistance is required, the services of a competent professional should be sought. The hiring of a professional is an important decision and should not be based on advertising.