Summer’s here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there’s little time for changes to take effect. But if you take the time to plan now, you still have six months for your actions to make a difference on your 2009 tax return. With the recent tax changes, planning for the reduction of your 2009 taxes is more important than ever. Here are some suggestions to get you started.
Pull out your 2008 income tax return, and review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year’s income below the threshold?
You might want to schedule home improvement projects to benefit from the tax credits available for energy-saving expenditures on your principal residence.
Evaluate your investment portfolio. If you have been avoiding the disheartening news, now is the time to reassert control over your investments. Review your holdings to see if you should take some losses to offset other income. If you’re considering investment purchases, analyze the type of income you’ll be receiving from the assets you buy. Then stash the investment in the proper account (taxable, deferred, or nontaxable) to achieve maximum return and tax savings.
Adjust your retirement plan contributions. Are you still making contributions based on last year’s numbers? Maximum amounts have increased for some plans in 2009. You can contribute up to $11,500 to a SIMPLE, up to $16,500 to a 401(k), and up to $5,000 to an IRA. Remember to add catch-up contributions if you’ll be 50 by the end of December.
Factor two recent tax changes into your planning for retirement fund withdrawals if you’re 70½ or older. First, the option to make a direct nontaxable donation of up to $100,000 from your IRA to a charity has been reinstated. Second, the requirement to take a minimum distribution from your retirement plan is waived for 2009. This applies to 401(k) plans, 403(b) plans, certain 457(b) plans, and IRAs.
Now is the time to do tax planning for the upcoming fall college expenses. Check out the various tax breaks, including the new, enhanced Hope credit (renamed the American opportunity credit).
Do some business tax planning, too. Plan your equipment purchases to benefit from the extension of 50% bonus depreciation for new equipment and up to $250,000 first-year expensing for new or used equipment.
Mix business with your summer vacation and you might be able to deduct some of your travel expenses on your 2009 tax return. To benefit, the primary reason for your trip has to be business.
Making time for 2009 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it’s especially effective at midyear.
Put midyear tax planning on your summer agenda
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