I know the last thing you want to think about during the holiday season is taxes. Alas, as the saying goes in this world nothing is certain but death and taxes – that’s why it’s prudent to start preparing now. I’ve compiled a list of things you need to do to save money on your taxes next year.
Feed your 401k – If you have an employer-based retirement plan make sure to max out your contributions especially if the company is
matching what you put in. Another benefit is that the money placed in these accounts (except ROTH- IRAs) is excluded from your income and this will lower your taxes. This year you’ll be able to contribute up to $16,500 to employer-based plans. Those 50 and older can contribute up to $22,000. Does your company not offer a 401k?
Open an IRA – Have no clue how to do this? Bargain Babe wrote about opening an IRA for her little brother a while back. In that post, she goes over some of the differences between a traditional IRA and ROTH IRA.
Give to charity – Tis the season to give back! If you make a donation before Dec. 31, you can write it off in your taxes only if you itemize deductions. Gently used clothes and cash donations can easily translate to tax deductions. If you contribute more than $250 to a charity, you’ll need proof from the charity. For clothes and household items, you have to figure out the value of the items. There are free online tools that can help you with this. If you donate a car worth more than $500, know that your deduction will be the amount the organization receives when it sells the car.
Turn your house green – I’m not talking paint color. I’m talking about making energy-efficient improvements to take advantage of the home-energy tax credit that expires at the end of this year. Bargain Babe wrote about this a while ago when she suggested to lower your taxes with energy credits and education. This year, the max is a $500 credit you can obtain if you didn’t claim it in 2010. You can claim 10% of the cost of new windows, doors, insulation, and heating and air conditioning systems. Keep in mind that no more than $200 can be allocated to new windows.
Education – To get ready for next year, I’m going through my files gathering my receipts for tuition and fees. If you have kids in college you too can deduct some expenses.
How are you getting ready for tax season?
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