Time is running out to take steps to lower your 2011 tax bill. Here are 5 ways you can do so, but act quickly!
1. If you’ve been putting off energy-efficient improvements to your home such as replacing your roof, windows, exterior doors, upgrading your furnace or hot water heater or adding skylights or insulation materials, time is running out to claim the tax credit associated with qualified improvements. There are lot of limitations to this credit, but it expires at the end of this year, so get cracking if you want the credit.* (and remember a tax credit is a dollar-for-dollar reduction of your tax bill, so you can knock the full dollar amount off what you pay)
2. Are you planning to make a big purchase like a car or other high-ticket item in the next couple months? If you itemize, you might consider making that purchase this year – it’s the last year you can elect to deduct total sales tax paid instead of state and local income taxes. This isn’t an excuse to go shopping, but if you’ve budgeted for it and it’s almost time, it might be worth it to get shopping before December 31.
3. Go ahead and prepay 2012 college tuition (for the first 3 months at least) while the higher education above-the-line deduction is still in effect. This provision expires at the end of this year, which allows you to deduct up to $4,000 in qualifying education expenses. Income limits apply, so if you make more than $80,000 (or $160,000 if you’re married) you don’t qualify. If you make between $65,001 and $80,000 ($130,000 or less if married) then you can only deduct $2,000. Not sure? Ask me!
4. If you pay estimated state or local income taxes and you itemize, mail those payments before December 31, (even though they’re not due till January 15) so you can deduct them against this year’s income.
5. Since tax rates aren’t changing for next year (they remain 10%, 15%, 25%, 28%, 33%, or 35%), try to defer income until next year so you can wait a whole extra year to pay the taxes.
Just remember: it’s perfectly legal to avoid taxes, but it’s quite illegal to evade. To ensure that you’re maximizing tax savings without violating the law, contact me for a consultation.
* If you’ve claimed the credit in the past (in one or more years since 2005) then you may be limited. There is a lifetime cap of $500 ($200 for windows). If you haven’t yet met the cap, you can claim the difference.
Kelley C. Long, CPA is a personal financial coach and tax preparer who believes that the true meaning of financial security means having choices in life. Visit her website at www.kclmoneycoach.com for more information.