Profitable tax moves to make

“Just because something doesn’t do what you planned it to do doesn’t mean it’s useless.”

– Thomas Alva Edison

Finished with one holiday (and I’m still stuffed with leftovers) … but now we move into the “holiday season”. Yikes. I’m *already* overwhelmed with all of the marketing going on, you?

(Far be it from me, of course, to complain about brisk business. I’m all for small businesses seeing a surge this month. Initial reports say that there was a 0.3% growth on Black Friday, but that online shopping grew by 16%. Recovery comes. Faster, please.)

Anyway, Congress is convening for its “lame duck” session. That’s an old term, coined in the 1700’s, which essentially means that this Congress is in the peculiar position of not facing the consequences of their actions in a subsequent election, giving them greater freedom to issue unpopular decisions.

But…the mood of the country may make this one rather tame. The “Bush Tax Cuts” may yet be extended. However, regardless of what Congress does, there are some important moves for you to make THIS month which will help your tax bill stay low.

5 Easy Tax Moves Before New Year’s

It’s usually our job to “assess the damage” AFTER the fact, and make sure families like yours pay only the minimum taxes they *should* when everything comes due.

That is, of course, unless you help us plan your tax moves ahead of time.

Now, it’s difficult to make blanket recommendations to all my clients, simply because everyone’s situation is different. That said, I’ve done what I can here to put together an actionable list of moves you can make NOW, which truly will affect almost all of my clients’ situations.

Of course, let us know if we can assist you with any of this…

1. Sell certain (appreciated) assets

Right now (until Dec. 31 at least), the long-term capital gains tax rates are at historic lows. Come January 1, there’s a very good chance they could be slightly–or significantly–higher.  So you’ll pay less taxes if, by Dec. 31, you sell stock and other assets that have appreciated and which you’ve owned for more than a year.

If you’re in the 25 percent tax rate bracket or higher, your long-term capital gains rate is just 15 percent. If you’re in the 15 percent income tax bracket or lower, you won’t owe any capital gains taxes.

2. Donate

It’s not just because ’tis the season, but often (if we’re all honest) because the year-end is so close. So, obviously, when it comes to taxes, giving to a nonprofit can be like a money-saving gift to yourself. If you itemize your deductions, you can claim your charitable donations, both of cash or goods.

In fact, if you’re *close* to being able to itemize deductions, making some nice gifts this month can push you over the top into some major tax-savings. And, of course, there’s the added benefit of what happens to YOUR mindset when you give.

What’s even better, in 2010–and this year only (at least for now)–there is no itemized deduction limit for anyone. So everyone who itemizes deductions, regardless of how much they make, gets to claim all of their itemized deductions.

But one caveat: increasing deductions could cost you if you end up owing under the alternative minimum tax.

3. Make the switch to Roth

Changing a traditional IRA to a Roth is even better this year because the $100,000 income threshold is gone. (However, taxes still will be due on any converted money that was not previously taxed.)

Even better: if you make the traditional-to-Roth IRA switch by Dec. 31, you can defer payment of the associated taxes until you file your 2011 and 2012 tax returns.

The same thing applies to certain 401(k) accounts too … you can defer tax payment over the next two years.

4. Put Those New Windows In!

We ‘tax people’ have been pounding this drum for a while, for the simple fact that (because of the last “stimulus” package) replacing windows, doors, and HVAC  systems– as well as installing new insulation–could net you a $1,500 tax credit on your 2010 tax bill! Credits always beat deductions. Note, however, that if you claimed the full credit on your 2009 return, you don’t get it again this tax year.

5. Adjust your withholding

Do you intentionally get a big refund each filing season? Quit that! You’re providing Uncle Sam an interest-free loan of your money.

Submit a new W-4 now so that your payroll withholding is more closely in line with your future IRS bill. It could even give you a few extra dollars at the end of the year to spend on holiday gifts!

Oh, and just so you know, it’s growing very likely that whatever Congress decides on the tax cuts, payroll calculators may not have time to update by January 1st. So, keep that in mind as well.

I hope these are easy, and that they give you some good ideas. Remember– I’m in your corner!

Kathy BylkasProfitable tax moves to make