1. Increase retirement savings. There’s still time to increase contributions to your retirement plan. The elective deferral limit for both 2009 and 2010 is $16,500 ($22,000 if you are age 50 or better). The pricing of many securities are affordable, so don’t miss this opportunity to buy low, save more and reduce your taxes.
2. Exhaust flexible spending accounts (FSAs). If you don’t use it, you lose it. Have you visited the dentist yet? Need a flu shot? Still holding receipts not yet filed? Even if your plan provides a grace period (where you can submit 2009 expenses after year-end), you must incur the expenses during 2009. Don’t forget about dependent care FSAs. In many cases, a dependent care FSA provides greater savings on federal income tax than the dependent care credit.
3. Give to charity. Due to the economy, many charities, including churches, need donations for there seems to be no decline in needs. If cash is tight, think creatively. You may have other assets the charity and the church would welcome — appreciated stock, real estate, clothing, etc. Your gift will be a blessing and your tax return will benefit too.
4. Check federal tax withholding levels. No one enjoys a surprise at tax filing time indicating you owe more taxes. Did you have a change in your personal or financial status? If so, this may affect your tax liability — you may be withholding too much or too little. Now is the time to make changes. If applicable, don’t forget about checking state income tax withholding.
5. Maximize deductions and credits. It’s easy to remember usual deductions such as home mortgage interest, but don’t overlook other qualifying expenses — especially purchases of energy-efficient products. Tax credits of 30%, up to $1,500, are available for certain products. Need a family Christmas gift idea? Consider purchasing energy-efficient appliances, windows, doors or a hybrid electric car. Go to www.energystar.gov for more information.
6. Buy a house. This may not seem like a tax savings tip, but it can be. Congress recently extended and expanded the first-time homebuyer tax credit. Despite the term “first-time homebuyer,” the expansion applies to some existing homeowners. Low mortgage rates and a tax credit can be a winning combination. Check with your tax adviser to see if the extension or expansion provisions may benefit you.
7. Rebalance your portfolio. Perhaps your investments lack luster due to recent economic conditions. Now is the time to get back on track. Many employers and financial institutions — including GuideStone — offer free educational and investment planning tools. These programs help determine your appropriate asset diversification. Proper diversification generally provides a better return while minimizing risk.
8. Get organized. Last, but not least — organization is essential. You can’t know where you’re going without a destination. Getting there is easier with a road map. Your road map begins with gathering your receipts and tax records. With these, it’s easier to determine which tax options will work for you. Tax time will be less stressful, and perhaps more profitable, if you organize now and take advantage of year-end opportunities.
*By Sherre Stephens, director of Executive Services, GuideStone Financial Resources
This information should not be considered tax or legal advice. GuideStone stands ready to assist you as you work with your legal and tax advisers by providing resource information that you and your adviser may find beneficial.