In the midst of the holiday hustle and bustle, try to carve out a few moments for some year-end financial housekeeping. You may be able to save enough money using available tax breaks to pay for all your holiday needs – and more.
Here are a few suggestions:
Boost 401(k) savings. You can contribute up to $16,500 to your 401(k) plan in 2009, plus an additional $5,500 if you’re over age 50. Making pretax contributions reduces your taxable income, which in turn lowers your taxes – not to mention the boost employer-matching contributions, when offered, can give to your account balance.
Online calculators (like the one at @link
href=’http://www.kiplinger.com/tools/401kadd.html’>www.kiplinger.com/tools/401kadd.html/link can help you estimate the impact additional contributions will have on your taxes. If you’re not already maxing out, ask your benefits department if you can make additional contributions before December 31.
Use up flexible spending account (FSA) balances. If you participate in employer-sponsored health care or dependent care FSAs, which let you use pretax dollars to pay for eligible expenses, make sure you spend the full balance before the plan-year deadline (sometimes up to 75 days into the following year); otherwise, you’ll forfeit what’s left over.
You can use your surplus health care FSA balance for things like over-the-counter medications, glasses or contact lenses. Conversely, if your account is empty, consider postponing non-critical medical expenses until early next year so they can count toward your 2010 FSA. See IRS Publication 502 for a complete list of allowable and non-allowable expenses.
To learn more about 401(k) plans and FSAs, visit Practical Money Skills for Life, Visa’s free personal financial management site.
Charitable contributions. If you itemize deductions on your taxes, charitable contributions made to IRS-approved organizations by December 31 are generally tax-deductible. (See Publication 78 for a complete list of organizations.) By accelerating donations you planned to make in 2010, you can beef up your 2009 deduction, thereby lowering your tax bill.
Tax credits for energy-efficient home improvements. You can claim a tax credit for up to 30 percent of the purchase price of certain home improvements to existing homes (including central air conditioning, furnaces, windows and water heaters), up to a maximum of $1,500 over 2009 and 2010. Check out the government’s Energy Star website for details (www.energystar.gov/taxcredits).
Sales tax deduction for new cars. If you’re already planning to buy a new vehicle in the coming months, doing so before December 31, 2009, may allow you to deduct state and local sales and excise taxes on up to the first $49,500 of the cost, even if you don’t itemize deductions. The deduction gradually phases out for those whose adjusted gross income is over $125,000 ($250,000 for married couples filing jointly).
Other strategies that help some taxpayers include:
Prepaying 2010 property taxes by December 31, 2009
Prepaying January 2010 mortgage payment by December 31, 2009
Making annual gifts of up to $13,000 ($26,000 for married couples) per recipient without triggering estate taxes
Check with your financial advisor or a tax specialist before taking these actions to ensure they will work for you.