Now that we have filed our 2009 taxes or extended filing it is now time to think about our taxes for 2010 and what we can do to minimize the amount we have to pay. Some things to think about are:
- Individuals aged 70½ or over will again be required to take required minimum distributions in 2010. This will be reported as taxable income and the firms that manage your accounts should be issuing notices on how much this distribution will be. If you manage your own retirement account you will need to calculate this amount and have it withdrawn in order to avoid a penalty.
- If you have not already done so, resume your retirement plan contributions. If you have a 401K at work the money you put into this can be pre-tax and will reduce your federal taxable income. It’s the easiest way to lower your federal taxes and save for the future. If you don’t have a 401(k) at work, then consider looking into a traditional Individual Retirement Account (IRA). If you qualify, then your contributions are tax deductable up to a certain amount.
- The incentives on home ownership are still one of the last and best deductions. The interest you pay on your mortgage is generally tax deductible as are the local real estate taxes. The personal property taxes that you pay on your car, boat, trailer or motor home are generally tax deductable in North Carolina.
- Do you work from home for yourself or your company? If you do then your home office may be deductible. The space you use must be exclusively and regularly used for your office. It can not be a corner in your bedroom or the playroom when the kids are asleep.
- Are you planning to make energy-efficient improvements to your home in 2010? If you are then you may be eligible for a tax credit of up to 30% of the cost of the improvement up to a combined $1500 for 2009 and 2010. This credit is for improvements such as replacement windows, skylights or a new water heater. Go to energystar.gov to see what qualifies. If you install a solar, wind or geothermal energy system into you home you can reap the benefits of a 30% credit with no upper limit. If this credit exceeds the total tax bill you can apply the unused portion to the next year’s return.
- Review your 2009 taxes for overpayments and refunds. Are you receiving a large refund? If so, then remember this is a no interest loan to the government and not a gift from them. Review all of the opportunities to reduce your taxes owed and make adjustment to your withholding to reduce the tax deducted from you paycheck. Use this money to fund an emergency fund for your family or to add to your retirement account for your future.
These are but a few of the changes and carryovers from 2009 to 2010 that may help you as you plan for April 15, 2011. As always we recommend that you consult with your tax professional to discuss whether these or other opportunities are right for you.