1. Compare standard versus itemized deductions - Put the amount of your 2009 standard deduction next to your itemized deduction and see how the two compare. If your itemized deductions exceed the amount of your standard deduction, you will save tax dollars by itemizing. If your itemized deductions are close to your standard, then consider shifting some of them from one year to the next. For example, if you can't itemize in 2009 but can in 2010, consider making your annual charitable donation in January instead of December.
2. Make flexible spending work for you - If you don't rack up enough medical expenses in 2009 to meet the amount you set aside in your flexible spending account, you'll lose the money. If you've got extra, it's a good idea to start making a few last-minute appointments, and be sure to save your receipts for medications.
3. Keep track of medical costs - Keep track of your unreimbursed medical expenses all year long. You can deduct those only if they exceed 7.5 percent of your adjusted gross income. If you think you're close to the 7.5 percent requirement but not quite there, you may consider having an elective or necessary procedure before year-end (be sure to check that it’s among the qualifying deductible expenses.)
4. Get serious about retirement - - One way to effectively lower your taxable income for the year is to contribute to or open a retirement plan, such as a 401(k), 403(b), deductible IRA, SIMPLE IRA or SEP. Make contributions for 2009 up until December 31st for 401(k)s and 403(b)s. With some plans, you have until April 15th to make those contributions. Check with an H&R Block tax professional to determine which move is best for you.
5. Adopt a charitable attitude - Donating clothing and household goods to charities. Be sure to get a receipt from the organization you're donating to, and keep in mind that the deduction is limited to the item's current fair market value (what you could sell it for at a garage sale). So do a good deed, and let it work for you.
6. Save with the sales tax deduction - If you itemize deductions on your return, you can choose to either deduct your state and local income taxes or state and local sales taxes for 2009. For those living in states that don't impose an income tax, the choice is clear. For everyone else, number crunching will point the way to the most advantageous option.
7. Put off the wedding - If you're planned to get married at the end of the year, it may be wise to wait for the new year, for tax savings. The so-called "marriage penalty" can occur when married couples filing a joint return end up paying higher taxes than they would have been if each were still single. Ask your tax professional about how your tax situation will change so that you can plan accordingly.
8. Harvest investments - If you have a large net capital gain so far this year, you might want to consider selling some poor performing stock to generate a loss before year-end. Doing so could reduce the amount of tax you pay this year. However, remember that if you do sell stock to generate a loss, you are prohibited from purchasing substantially similar stock within 30 days before or after the sale that generated the loss.
9. Don't let extra money sit around - If you have a large amount of cash to invest and want to shift some of your income to 2010, consider investing in a short-term CD or a Treasury bill that matures in 2010.
10. Strategies for the self-employed - If you're self-employed and use the cash method of accounting, you can decrease your 2009 taxable income by delaying your December billings until January, setting up a qualified self-employed retirement plan (SEP) and deducting contributions you make on your 2009 return; and buying supplies and equipment this year instead of next.
Check back often for more great tips from The EnRoute Team!