Last Minute Year-end Tax Actions

OK, time to stop procrastinating.  Only 1 week left in 2009, so there's a few things you need to do now to affect your tax bill or refund for this year.

If you are self-employed, make that retirement plan contribution now (SEP IRA, 401(k), etc.)  Contribution limits increased this year and there's an extra amount allowed if you are better than 50 years old.

If you are fortunate enough to have some money to give as gifts, you should make your tax-free gifts to individuals now. You can give up to $13,000 per donor, per donee in 2009. This means that you, in conjunction with your spouse, can give up to $26,000 to each person, free of gift taxes.  In addition to the annual exclusion, you can use the lifetime exemption of $1 million.

Give to charity now. Checks written and sent by December 31, 2009, are considered 2009 donations, regardless of when the charity cashes the check.  Donations made by credit card works the same way. The donation is based on when you make the charge rather than when you pay the credit card bill.  Remember to get a receipt for all donations - cash or non-cash. Lastly, remember that not all not-for-profit organizations are qualified to receive tax deductible contributions. Ask for their documentation to ensure that you are giving to a qualified organizaions to avoid having your deduction disallowed by the IRS.

For small businesses, now is the time to be sure that your mileage and other miscellaneous expenses are properly documented.  This continues to be a target audit area for the IRS.  Mileage expenses must be documented in a "contemporaneous" record, meaning you can't rush to create mileage records when you receive an IRS audit notice.  If you haven't done so on a daily basis (my recommended 'best practice'), please do it now.

Sell loss stock - maybe.  Tax effects are one consideration in your investment strategy - but not the only one.  If you are considering selling a stock that is in a 'loss position' in your portfolio, you may want to do this before year-end to offset gains from other stock sales. (I write "stock," but this applies to any investments in securities and many types of other property).

Pay your real estate property taxes, if advantageous.  Deductibility of real estate taxes is based on when you pay.  In some cases, it may be better to 'bunch' your real estate tax payments for 2 years into 1 tax year.  This can be done by paying one year's bill in January and the following year's bill in December of that same year.  Why?  If the total of your itemized deductions (medical, taxes, interest, donations, casualty and theft losses, job expenses, tax return preparation fees and other miscellaneaous items) without real estate taxes is less than your "Standard Deduction," if you 'bunch' your real estate tax payments into one year, you may be able to take the Standard Deduction in one year and a higher Itemized Deduction the following year.  Be careful to check your state tax rules to see if there are limits which may affect the value of this bunching strategy.

Call me anytime with any last minute questions.  Merry Christmas!


Contact me:
kfolberg@mynetcpa.com
(262) 421-1170 Office
(877) 277-7151 Fax