Right now you probably have taxes on your mind. First, you need to wrap up last year and file your taxes online with a company like TurboTax and their TurboTax Federal Free Edition. After you get that out of the way you want to start tax planning strategies for 2010 to lower your taxes this year.
Here are 10 steps to lower your taxes in 2010.
1.) Buy a home. You can take advantage of a devastated real estate market and buy a home at prices not seen for years. First time buyers – individuals who haven’t owned a residence in the last three years – can claim up to $8,000. Current homeowners who’ve lived in their residence for five of the eight years before buying can get up to $6,500.
Do not delay, though, you must have a contract in place by April 30, 2010, and the deal closed by June 30 to qualify for this outstanding credit.
2.) Don’t get caught by the Making Work Pay trap. This tax break was designed to put more money in consumer hands quicker, but if you work two jobs it may come back to bite. If you work more than one job, check with a tax advisor or the payroll department at work to make sure your W-4 is filled out properly at each job.
3.) Convert your traditional IRA to a Roth. Now in 2010, anyone can now convert a traditional IRA to a Roth retirement account. The $100,000 income limit has been removed.
If you decide this is the right retirement move for you, note that you will have to pay taxes on the previously untaxed amounts in your traditional IRA that you convert. The good news is you can choose to pay half the conversion costs on your 2011 taxes and the other half in 2012.
4.) Get tax benefits from increasing your home’s energy efficiency. You can be more comfortable in your home and have some of the costs returned on your taxes with special tax credits.
Homeowners can claim up to 30 percent of the first $5,000 spent on qualifying residential energy upgrades, or up to $1,500 in tax credits. A solar home heating system can get you even bigger tax credits.
Be advised, this might be the last year so if you need to make home repairs, consider energy-efficient upgrades now.
5.) Get that hybrid car now. The hybrid credit is good through 2010, but only with manufacturers that have not sold 60,000 eligible cars. So shop carefully to make sure the hybrid you are looking at qualifies.
6.) See an Estate Tax Professional. Congress has really messed this area up and you can expect that money hungry legislators will want to reclaim more of your money they don’t deserve. A qualified estate tax professional can help you arrange your affairs to make sure you and your heirs do not get bitten any more badly than necessary.
7.) Required minimum distributions are back on retirement accounts. Tax-deferred savings plans such as traditional IRAs or workplace 401(k)s are great ways to save for retirement.
But Uncle Sam will not wait for its cut of these accounts forever. Once you turn 70-1/2, tax law demands you start taking money out of these accounts via required minimum distributions, or RMDs. They were absent from the law in 2009, but back in 2010.
8.) Take capital gains at lower rates now. George W. Bush’s tax cuts included reductions in capital gains tax rates based on taxpayer adjusted gross income. Right now the highest rate is 15 percent for individuals in the 25 percent to 35 percent tax brackets. Taxpayers in the 10 percent and 15 percent tax brackets pay no capital gains tax at all.
That’s scheduled to change in 2011. The top rate will return to 20 percent; the zero rate will revert to 10 percent. And with this administration and the party controlling Congress, this could get worse. There is no guarantee they won’t make retroactive changes, either.
9.) Watch out for rising income tax rates. The Bush tax cuts expire at the end of 2010. Tax rates go up for higher income earners and the 10 percent rate is eliminated for lower earners.
Who knows what Congress will do in the light of trillion dollar deficits, but keep an eye out and plan accordingly. Do not be afraid to call your Senators and Congressperson and let them know how you feel about tax hikes.
10.) Watch out for health care changes. In light of the Massachusetts special election going to a Republican, health care changes could jump off the fast track; but nevertheless there could be ramifications for you tax wise if something does finally pass.
Keep your eye on this and stay out from under the knife on this one!
There is nothing like a good tax advisor, and it pays to be as informed as possible. Save money on your taxes and choose an online tax preparation option that will get you every deduction you qualify for and your largest refund.
Come to our website for online tax preparation and advice, the address is http://www.FileForFreeOnline.com.
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