Friday, November 20, 2009

Year-end tax strategies

Q Is it true that I can prepay some of my 2010 expenses and deduct them on my 2009 tax return?
A Yes. There are several things you can do. If you don't think your personal income tax bracket will be higher next year, and you're not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year. This includes property taxes and quarterly estimated state income taxes.
If you're self-employed, stock up: This is the time to buy all of the business equipment and supplies you haven't yet purchased. Make sure to mark and save your receipts.

And, you can pay your January 1st mortgage payment on or before December 31st: This allows you to take an additional deduction for interest paid. Remember to add the interest amount to the amount reported by your lender when they send you a 1098 form.

Also, you may be able to defer income: Unless you have reason to believe that next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January.

Update on Homebuyers' Tax Credit

Q      Is it true that the First-time Homebuyer’s Tax Credit is continuing beyond December?

A      Yes.  President Obama signed an extension and expansion of the first-time homebuyer’s tax credit recently.  The $8,000 credit was scheduled to lapse on Dec. 1, 2009, but will now be in effect through the end of June 2010. Homebuyers must sign a contract before April 30 and close by June 30, 2010. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.
The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years -- still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.
Homebuyers who purchase a home in 2009 or 2010 (or purchased a home in 2008) may be able to take advantage of the first-time homebuyer credit. The credit:
  • Applies only to homes used as a taxpayer's principal residence.
  • Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
  • Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.