It’s not too late to cash in big by taking advantage of year-end tax tips. Here are ten tips for 2010 that could earn you a juicy refund in 2011.
1. Donate to charity before year-end and you can deduct it on your 2010 return, if you itemize. You could even pay with a credit card, allowing you to claim the deduction for 2010, but you won’t pay the bill till 2011. Be sure to save receipts, cancelled checks or bank records to verify your donations.
You also don’t have to give cash to claim a deduction. You can donate clothes, furniture, house wares, appliances and knickknacks to thrift stores. The Salvation Army has a handy chart to help you figure the value of your donated items for tax purposes.
To deduct charitable contributions of items valued at $500 or more you must also complete a Form 8283, Noncash Charitable Contributions, and attach the form to your tax return.
2. Are you, or a family member, enrolled in college? You can claim the American Opportunity Credit, which is a tax credit of up to $2,500 per student per year. To get the full credit, you’ll need to spend at least $4,000 on qualified expenses.
Forty percent of the credit is refundable, so a low-income family that doesn’t owe federal taxes could receive a check for up to $1,000. By the way, the credit is good through 2012, so you also can plan ahead to claim it on next year’s tax return.
3. You have until Dec. 31 to claim special tax credits for energy efficiency. You can claim up to $1500 for qualifying home improvements such as insulation, energy efficient windows and doors, water heaters and roofs. The improvements must be installed only in an existing home which is your principal residence. New homes and rental homes do not qualify. Get more information at the federal Energy Star site.
4. Do you have a flexible health care spending account? Make sure you’ve used it up by Dec. 31. Flexible spending accounts allow employees to pay for co-payments, deductibles and other unreimbursed medical and dental expenses with pretax dollars.
Here’s an important tip: through Dec. 31, you can can use money in your flex health care account to pay for over-the-counter drugs, such as aspirin and cough syrup. But starting Jan. 1 you won’t be able to use those spending account funds for over-the-counter drugs unless you have a doctor’s prescription. So stock up now.
5. Save money on your taxes by prepaying some of your bills. You can pay your January mortgage by December 31, and that way, you can deduct the January interest payment this year. If a property tax bill is due in January or February of next year, you also could pay that this month and deduct it from your 2010 tax return.
6. If you have a 529 college savings plan for your child, you might consider adding to it before the end of the year. Check if your state allows you to deduct your contributions. Your plan provider should be able to tell you whether you qualify.
7. Want to unload a poor investment? Sell stocks before year’s end and the IRS will allow you to deduct up to $3,000 of your total losses on stock sales for 2010. Losses greater than than $3,000 may be carried forward to future tax years
8. IRA’s are an ever-popular way to stash away savings and save on your tax bill. And it’s good for procrastinators too – you have until the 2011 tax deadline (April 18) to contribute to an IRA and take a deduction for 2010.
The maximum contribution this year is $6,000 for those 50 and up, and $5,000 for those younger. Also, if you’re thinking of converting to a Roth IRA, now is a good time. Roth IRA’s are taxed now, rather than later – but for this year only, you have the option of splitting your tax bill over two years.
9. Got grandchildren? Give now. Generation-skipping cash gifts made in 2010 won’t be estate taxed. But for 2011, they’ll have a 35% tax bite.
10. Get those file folders ready. Put your paperwork in order and categorize your receipts and statements. This will save you time when preparing your tax return, and will help protect you if you’re audited.