WASHINGTON, Sept 24 (Reuters) – This year will be pulling to a close faster than you think.
Not only is Dec. 31 the end of the line for some of the government stimulus money and tax breaks you may be counting on, it is also the deadline for other tax-related behaviors that can save you big bucks if you handle them right.
Here’s a laundry list of year-end strategies that can optimize your cash now and get you ready to usher in 2010.
— First time home buyers, get cracking. If you settle on your new home before Dec. 1, you will qualify for an $8,000 refundable tax credit. That’s free money. Don’t buy a home that doesn’t make sense just to snag the credit. But if you are in the market, hustle.
— Car buyers, start shopping too. If you didn’t qualify for “cash for clunkers” but still think you need a new car, it may be worth your while to seal the deal this year. You will be able to deduct the sales and excise taxes from your 2009 taxable income, even if you don’t usually itemize deductions. This expires on Dec. 31, and is good for purchases of cars, light trucks, motor homes and motorcycles — just in case you “need” a motorcycle.
— Spend your benefit dollars. If you have a tax-favored flexible spending account for health benefits or childcare, you may be in a use-it-or-lose-it position. Some companies cut off those benefits on Dec. 31; others give workers until mid-March to pay 2009 expenses.
If you have amassed more than you think will be needed in the next three months, start scheduling the eye exam, the dental cleaning and the other assorted health maintenance appointments that have been put off. If you overestimated child-care expenses, start planning now to give your caregiver a nice holiday bonus.
— Plan your benefits package for next year. If you’re not already in open-enrollment season, you likely will be soon. Look at how you have used your health insurance and other benefits, and analyze whether a new plan would be beneficial. If you’ve got enough cash to pay small health costs yourself, consider getting a high-deductible plan with a paired health savings account. You will be able to deduct your contributions to that account and use them for health-care expenses or save them for the future.
— Feed your retirement accounts. That includes your 401(k) and any individual retirement accounts. The more you contribute, the quicker you will make back whatever you lost in the last year. You can contribute up to $5,000 to your IRA this year; $6,000 if you are 50 or older. High earners who have been shut out of the Roth IRA market (you can’t contribute if you make $105,000 or more; $166,000 for couples) will get an opportunity in 2010 to convert their traditional IRAs into Roth IRAs. They can squeeze in more retirement savings by building traditional IRAs now, and then converting them next year.
— Spend money on tax-favored items. Tuition payments, energy-saving devices, health care, state taxes and business expenses are all deductible or entitle taxpayers to credits. So aim year-end spending there.
Miscellaneous deductions — such as work-related supplies or moving expenses — and medical expenses are only deductible to the extent that they top certain percentages of your net income, most tax professionals recommend you “bunch” them into every other year. So if this is a year in which you had a lot of medical expenses, prepaying January bills in November and December could save you money in April. Pay your property taxes before the end of the year and, if you are paying those state taxes in your mortgage payments, make your Jan. 1 payment before the last week of December, so it clears in 2009.
— Plan your year-end giving. Charitable contributions remain tax deductible, of course, and most people who are not jobless and hurting themselves like to give away money as the end of the year approaches. Start now, by choosing the causes and groups that mean the most to you. Once you have a plan, it will be easier to send more to them and say “no” to all of the other solicitations.