The decorations are up, the shopping is underway and holiday parties line the calendar. That means it’s time to think about your tax bill. A little effort now could add to the list of what you have to celebrate.
Here are a few refund-boosting steps to consider, as recommended by Gregory Rosica, a tax services partner with tax advisory firm Ernst & Young, and Jackie Perlman, principal researcher for H&R Block’s Tax Institute:
Accelerate deductions and defer income
Make deductible payments and expenditures before the end of the year, and delay receiving any income you can until next year.
For example, local property tax bills due in January that are paid in December can be itemized in this year’s return. Or if you’re eligible for one of the education credits, prepaying tuition or fees may be a smart move.
To reduce income, independent contractors or small business owners who bill for their services might find it to their advantage to hold off sending an invoice until after the New Year. If you plan on selling an investment that has gained in value since you purchased it, wait for January to put off capital gains. And if you get an end-of-the-year bonus, it is likely worthwhile to ask for if you can collect it at the beginning of next year.
Sell losing investments
If you own a stock or other investment that’s lost value this year, selling before 2012 begins could help offset income and lower your tax responsibility. This can be particularly helpful if you’ve already sold another investment with a gain, because up to $3,000 of losses can be used to offset gains.
Save energy and tax dollars
Among the credits expiring at the end of 2011 is one that allows a claim of up to $500 for energy efficiency improvements to a home, including steps like installing new windows, a new boiler or insulation. This is a lifetime credit, so if you’ve already taken it in a previous year, you can’t claim it again. And the work has to be done by the end of the year for the purchase to qualify, so make sure you have someone lined up for installation if you’re not the do-it-yourself type.
Make a major purchase
Through the end of the year, taxpayers have an option to deduct state and local sales taxes in place of state and local income taxes on federal returns. If you’re planning on making a major purchase like a car or household appliance soon, it might be worthwhile to do this month to boost that sales tax deduction. If a car is on your wish list, there are also credits of up to $7,500 available for plug-in electric cars like the Nissan Leaf and Chevy Volt.
Maximize work expenses
The special $250-per-year deduction for teachers who use their own cash to pay for classroom supplies expires at the end of 2011, so teachers should try to reach that limit before then. If you buy your own supplies, such as uniforms or computers for work, making the purchase before the end of the year can help boost unreimbursed employee expenses. Also consider pre-paying dues for unions and professional organizations, licensing fees and similar costs for 2012.
Donate wisely
The holiday season is a popular time to make charitable donations, but cash dropped into a street corner kettle is not deductible. You must have receipts, credit card statements or cancelled checks for all donations, and any donation over $250 also requires an acknowledgement letter from the charity that received it.
For seniors over 70? years old who are required to take an IRA distribution before the end of the year, an expiring provision that allows that distribution to go directly to charity may be a tax boon. Up to $100,000 that is sent straight to a cause doesn’t count as income. While you can’t claim the charitable deduction, it still might be a smart move because keeping total income down could reduce taxes on other income, including Social Security benefits.
