If you made a list of things to accomplish by the end of the year, would “review taxes” appear? If not, add the item and put it toward the top. You could save hundreds, even thousands, of dollars on your tax return with these simple tips.
Start by estimating your taxes. Tax preparation solutions make estimating your federal and state taxes easy. One of the leading solutions, TaxACT, releases its products in early October for free use.
An early estimate will reveal where there’s still potential for savings. Specifically, look for tax breaks scheduled to expire at the end of 2011. You’ll also see the impact of the latest tax law changes on your return. You may discover tax breaks you claimed last year have expired, changed amounts or have different qualifications. Conversely, new tax breaks may be available that require action by Dec. 31.
Knowing the approximate amount you’ll be refunded or owe ahead of time may influence your year-end spending. If you expect a large refund, you can begin planning how to invest that money. If you have a balance due, make a payment now or adjust your withholding through the end of the year so you owe less at tax time.
Next, consider making these timely money-saving moves.
* Give charitably to IRS-approved organizations if you itemize deductions. Whether you donate cash, clothing or household items, save your gift receipts. Use the fair market value to determine the deductible value of your non-cash donations.
* Some energy-efficient home improvements made before Dec. 31, 2011, qualify for tax credits. Visit energy.gov for information.
* If you (not your mortgage company) pay your own real estate taxes, consider pre-paying taxes due early 2012 by Dec. 31 so you can deduct them on your federal return.
* Make your January mortgage payment by Dec. 31 to increase your mortgage interest deduction. If your mortgage interest statement does not reflect your pre-Jan. 1 payment, deduct the correct amount on your tax return and submit a statement explaining the difference between your deduction amount and the lender’s statement.
* Contribute the maximum allowed amounts to your 401(k) or 403(b) retirement plans.
* Convert your traditional IRA to a Roth IRA. The gross income cap for who can convert has been removed.
* Defer income like year-end bonuses and stock options until Jan. 1, 2012 to decrease your taxable income for 2011.
* If you own stocks with big losses, consider selling them in order to offset taxes on gains.
* If your state offers 529 College Savings Plans, your contribution could be deductible.
* Pay your spring college tuition now if you haven’t yet reached the Tuition & Fees Deduction $4,000 maximum.
Information about these tax breaks and others for federal returns due April 17, 2012, are available at www.irs.gov.
After you’ve done everything possible to maximize your tax savings by Dec. 31, gather and organize your tax documents. View or print a list of documents and information you’ll need for your return at www.taxact.com/checklist.
Preparing early will allow you to file your return as soon as you receive all your W-2s and 1099s in January or early February. If you owe taxes, you can still file early and schedule payment later (any time before the filing deadline).
Finally, cross taxes off your year-end list and enjoy some peace of mind. It’s a great way to end the year and start a new one.
Learn more about TaxACT and start a free federal tax return at www.taxact.com.