Take Advantage of Tax Savings Before Year-End
Before the year is over, take a few minutes to familiarize yourself with all of the potential tax breaks currently available – especially those newly enacted this year. Doing so could reap you substantial savings at tax time.efore the year is over, take a few minutes to familiarize yourself with all of the potential tax breaks currently available – especially those newly enacted this year. Doing so could reap you substantial savings at tax time.Recent Tax Breaks
Taxpayers may benefit from several new tax breaks available through the American Recovery and Reinvestment Act of 2009. Note the first three credits below phase out at specified income levels.
- College expenses – Parents of a college student may claim a tax credit of up to $2,500 a year to cover higher-education expenses.
- First-time homebuyers – If you buy a primary residence for the first time between Jan. 1 and Dec. 1, 2009, you can receive an automatic $8,000 tax credit. The credit doesn't have to be repaid unless you sell your home within three years.
- New cars – Buyers of new cars purchased between Feb. 16 and Dec. 31, 2009, may deduct state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new
car, light truck, motor home or motorcycle. This deduction is available whether or not you itemize tax deductions.
- Public transportation – If your company offers a qualified transportation fringe benefit and you commute to work using public transportation, you may now set aside up to $230 a month in pretax dollars, up from $120 a month, to cover the cost of a bus, train or van pool.
- Unemployment benefits – If you received unemployment benefits in 2009, the first $2,400 in benefits is exempt from federal taxes.
Timeless Tax Advice
Also consider the following perennial ways to reduce your taxes:
- Cash gifts – You can give up to $13,000 per person to any number of individuals in 2009 without having to file a gift tax return. The limit is $26,000 if you're married and the gift is from you and your spouse.*
- Capital gains – If you anticipate a large net capital gain this year, consider selling under-performing investments to generate a loss to reduce or eliminate your capital gains tax. Capital losses can offset gains dollar for dollar. Losses in excess of gains are deductible against other income up to an annual limit of $3,000 ($1,500 if you're married filing separately). Losses in excess of $3,000 can be carried forward to future years.
- Itemizing deductions – If you're planning to itemize deductions, try to maximize them this year by accelerating deductible expenses, like real estate tax payments.
- Charitable contributions – By using a credit card to make a charitable donation in 2009, you can still count it as a tax deduction even if you don't pay the bill until 2010.
- Medical deductions – Medical expenses are deductible if they exceed 7.5% of your adjusted gross income. If you're close to the 7.5% threshold, consider scheduling and paying for an elective or necessary medical procedure before year-end.
For specific counsel on ways to reduce your taxes using tax credits, consult with your tax advisor.
| * | This is the limit for 2009. It is indexed to inflation for future years. |
| AFCU does not give tax advice. Consult your tax advisor for information about your specific situation. | |
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