Thanks to a holiday in Washington, we get an extra weekend to sort out our taxes this year. (The tax-filing deadline is April 18).
And since the Tax Policy Center says about 45% of American households don’t pay a single penny in income tax, why shouldn’t we look to save a penny or two?
After all, Supreme Court Justice William H. Rehnquist said, “There’s nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that.”
So we’ve compiled some last-minute tax saving tips for you to consider…
Eight Last-Minute Tax-Saving Tips
1. Go Green to Save Green: Becoming a tree-hugger never looked so tempting. Thanks to the residential energy-efficient property credit, you can get a 30% credit for money spent on installing solar, wind or geothermal systems. Remember, since this is a credit, it reduces your tax liability dollar-for-dollar. And there’s no limit on the amount, either. So go ahead and cover your whole darn house and yard with solar panels and wind turbines.
2. Be Your Own Boss: In addition to napping on the job and working in your boxer shorts, if you’re self-employed you can also contribute a bundle to a retirement plan. Limits for contributing to a simplified employee pension, or SEP, check in at $49,000 for 2010. Even better, you can make a deductible contribution to a SEP account as late as October 17, 2011, as long as you extend your 2010 return for the automatic six-month period.
3. Two Men and a Truck: I’ve moved about 14 times in the last decade. (I’m a chronic real estate speculator, not a member of the witness protection program). Thankfully, a few of them have happened because of work, so I’ve been able to deduct reasonable expenses. And if you’ve moved more than 50 miles for work, you can, too. Given the bleak employment situation, I’m certain that many more people than normal have moved for work in the last year.
4. Healthy Insurance: If you have a high-deductible health plan it’s not too late to contribute to a health savings account (HSA). You can reduce your 2010 taxable income by contributing up to $6,150 per family (or $3,050 as single) to an HSA by April 18.
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5. Gamble Away: If you invest in the stock market, chances are you’re also not afraid to pony up to the craps table for a couple rolls of the dice, either. If so, you should keep track of your winnings and losses. As long as you itemize deductions, you can deduct your losses up to the amount you’ve won on Schedule A, line 28. Just make sure you have written evidence.
6. Medical Expenses: If your medical bills total more than 7.5% of your adjusted gross income, you can deduct them. There’s no limit on this deduction either. If you’re a married, high-income earner, it might make sense to file separately to take advantage of this deduction. (Consult your tax advisor first). Oh, and cosmetic surgery doesn’t qualify, otherwise Hollywood wouldn’t pay a dime in taxes.
7. Spend Big to Save: The 2010 Tax Relief Act extended the right to take a deduction for sales taxes paid instead of state income tax. If you live in a state without an individual income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), this is a no-brainer deduction. For those in states that do have an individual income tax, if you made any big-ticket purchases (think car, boat, even an engagement ring) you could benefit. Just dig out those receipts and tally up the sales tax amount.
8. Trading on Margin: If you borrowed on margin in your investment accounts last year, you can deduct the interest you paid (as long as you itemize deductions). The only catch? Your deduction can’t exceed your taxable income from interest, annuities, royalties and short-term capital gains. But you can carry forward any excess investment interest expense.
An Obligatory Disclaimer
As British politician, Dennis Healey once said, “The difference between tax avoidance and tax evasion is the thickness of a prison wall.”
And although we’ve fact-checked our findings, we recommend you consult your tax advisor to be safe. That is unless you relish the prospect of being fitted for an orange prison jumpsuit.
Whatever you do, don’t delay. The taxman cometh in five days (and counting).
Ahead of the tape,