subject: Tax Tips For 2010 [print this page] Even though tax day is still months away, it is never too late for taxpayers to start preparing and contact a tax preparer. Things could be a little more difficult than usual this year because the Bush tax cuts are planning to expire unless Congress decides to extend them. This could cause tax rates to increase as high as 39.6 percent on ordinary income and 20 percent on capital gains, according to BankInvestmentConsultant.com.
With all the possible changes, it may be confusing for taxpayers to file their income taxes. However, they can still be in control with a few tips to help them out.
Condensing all itemized deductions into one year can help citizens lower their adjusted gross income. Undergoing all non-urgent medical procedures into one year will allow people to get over the 7.5 percent AGI floor for medical expenses. Having all professional fees in order, such as legal advice and tax planning, can get individuals over the 2 percent AGI level for miscellaneous expenses.
Another way to reduce AGI is with above-the-line deductions, which are deductions that the Internal Revenue Service allows a taxpayer to subtract from his or her gross income. Many above-the-line deductions have traditional Individual Retirement Account and Health Savings Account contributions.
Donating property to charity will allow people to deduct the entire value of the property without paying capital gains taxes. However, do not donate depreciated property. The best thing to do is sell the property and then give the money to charity. By doing this, taxpayers will take a capital loss and a charitable deduction. Make sure to check the limits and substantiation rules before donating anything.
Accounts like 401(k)s and IRAs offer some of the best tax savings in the Internal Revenue Code. When adding money to these accounts, it will reduce taxable income at the time the contributions are made and taxes will not need to be payed until the money is taken out at retirement. Roth versions of 401(k)s and IRAs may also save taxpayers. Unlike the more traditional retirement accounts, individuals will not get a tax break at the time the money is contributed to a Roth account. However, the money will increase, tax-free, and may not be taxed again if distributions are made correctly.
If capital gains rates go up in 2011, many taxpayers should think about selling assets now since rates are low. Stocks, for example, can be sold and bought back right away, which allows the payment of tax without changing position. However, before doing this people should consult a professional as certain rules may apply.
By considering these tax methods, many Americans can properly prepare themselves for the possible changes coming in the next few months. However, it is always a good idea to see a tax preparer as well, to make sure everything is in order.
