Sample

Flash Reports

There's Still Time to Cut Your 2010 Tax Bill

Seven Commonly Overlooked Strategies

"Over and over again the Courts have said that there is nothing sinister

in so arranging affairs as to keep taxes as low as possible. Everyone

does it, rich and poor alike and all do right, for nobody owes any

public duty to pay more than the law demands."

 

These words of Judge Learned Hand are particularly important as the end of the year approaches.  What a shame to find out about a good tax-saving strategy next January when it's too late.  Here are seven last minute ways to cut your tax bill that may add some cheer to your holidays.

  1. Itemize your clothing donations for a bigger deduction.  Stuffing clothing items into a bag without itemizing them will be a lot easier, but preparing a list can result in a more generous tax deduction - one that can be better supported in the event of an IRS audit.  If possible, list the retail costs of the clothing as well as furniture or other personal property and note the condition of the items.

  2. Donate appreciated securities.  Thanks to strong gains in the stock market, you may have some stocks, mutual funds, or other investments with sizeable capital gains.  Appreciated securities make ideal donations because you don't have to pay capital gains taxes but the total value of the donated securities qualifies for a deduction.  The charity will be happy to provide you with the information necessary to transfer securities from your brokerage account.

  3. Make last minute charitable contributions with a credit card.   If you're short on cash in December but want to make a contribution to a favorite charity, there's a good chance that they will accept a credit card payment.  As long as the credit card is charged by December 31, you can pay it next year but deduct the payment this year.  Also, if a contribution you make by check is in the mail by the end of the year, you can take the deduction this year even though the check doesn't clear until next year.

  4. Avoid an underpayment penalty by increasing your tax withholdings in December.  If you haven't had enough taxes withheld this year and are likely to be assessed a penalty and interest for underpayment, many taxpayers think that they can avoid the penalty by making up for the shortfall with the fourth estimated tax payment, due on January 15.  But the IRS looks at when the estimated tax payments were made, and those who load up on payments late in the year will probably be penalized.  One solution is to ask your employer to increase the amount withheld from your paychecks for the rest of the year.  Since payroll withholdings are assumed to be made equally throughout the year, you may be able to avoid a penalty. 

  5. Spend FSA money.  Many employers offer flexible spending accounts (FSAs) so that employees can use pre-tax dollars for medical care and/or childcare.  Employees who do not use the money in their account by the end of the FSA year lose it.  Some FSAs expire in December while others expire at a different time.  If you have an FSA, make sure you use all the tax-advantaged benefits by the deadline.

  6. Take advantage of education tax credits.  The enhanced American Opportunity Credit for undergraduates expires at the end of this year.  Qualifying individuals who pay at least $4,000 in college tuition in can claim a tax credit of up to $2,500.  If you haven't spent enough to take advantage of the full credit, pay the student's future tuition in advance - by the end of December.

  7. Set up a self-employed retirement plan.  If you or a family member has any income from either full- or part-time self-employment, the best and most flexible self-employed retirement savings plan is the so-called "solo 401(k)" or "self-employed 401(k)."  Many brokerage firms and mutual fund companies offer these plans at no cost, but they must be set up by December 31.  You don't have to make a contribution until your tax return deadline next year, but you'll still qualify for a tax deduction this year.