- Evaluate Savings: One of the best ways to save is through the various tax advantage savings plans. The most common is the 401k program. Every dollar, up to $16,500 ($22,000 for those over age 50) deposited into a 401k reduces your taxable income, and therefore, your tax bill. If you are not currently participating… START! If you are already participating, make it your goal to increase your contributions over time until you hit the maximum.
- Evaluate Your Portfolios: How are your assets allocated? Should you consider moving part or all? Now that the dust has settled, it is a great time to review your options. A word of caution… make sure you get a full disclosure of all risks and fees before investing. Review your investment portfolio with your financial advisor before making any decisions.
- Tax Savings Strategies: Many activities, such as home improvements, may provide tax benefits. The Energy Tax Act offers tax incentives for energy efficient products installed in your home. The benefit allows taxpayers’ credits up to 30% of the cost of the improvements. There is a maximum credit of $1,500 for 2009. Consult your tax advisor for more information.
- Review Your Withholdings: Many Americans end up owing taxes because they did not have enough withheld during the year. This year will likely be worse than normal. The Make Work Pay Bill provision of the stimulus package automatically lowered withholdings for most taxpayers. The problem is many of those same taxpayers will not be entitled to the $400 (single) or $800 (for couples filing jointly) tax break. If you are one of these individuals, you could find yourself $800 short in your withholdings. Check with your tax advisor for help.
- Buying a Home: If you are a first-time homebuyer, or if you have not owned a home in the last three years, you can claim a refundable credit of 10% of the purchase price, up to $8,000. This credit applies to homes purchased after December 31, 2008 through December 1, 2009.
- Buying a New Car: New for 2009, you can claim sales taxes paid on the purchase of a new car. There are also additional credits, up to $7,500 for the purchasing of a hybrid or “plug-in” car. Congress has just passed this so-called, “cash for clunker” bill. Under this legislation, you can turn in a gas guzzling car and receive between $3,500 – $4,500 in tax credits toward the purchase of a high-mileage vehicle. There are a number of requirements that will make it difficult for most Americans to qualify, but if you do, it is a great opportunity.
- Commit to Getting Organized: Start filing important statements and receipts. Safely store all tax-related documents, financial statements and insurance contracts. If possible, keep an electronic copy of all important documents.
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