Year end tax planning makes financial sense. There are several things that can be done every year to save money. All they require is a little planning and execution.
Many accountants have told me over the years, clients will come to them in January or February and ask how to reduce their tax bill. Simple answer: Review your tax situation BEFORE December 31st!
Here are 3 strategies worth considering for 2009:
AMERICAN OPPORTUNITY CREDIT
The IRS has effectively expanded the Hope Credit to assist more families with tuition expenses. Four years of post secondary education are now allowed (formerly two years) offering a maximum tax credit of $2,500 per student.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.
Have you recently started a new job? If so and you are eligible for your companies 401k plan, you can fund an entire years amount of contributions the next several weeks. Granted, most people will need the money if they were previously unemployed. But, you can front load the contributions up to $16,500 or $22,000 if you are over 50.
This appears to be the last year for taxpayers over the age of 70 1/2 to make donations directly from an IRA account. This is a wonderful opportunity for individuals to donate appreciated assets @ fair market value and not pay income taxes on the distribution.
As the Financial Planning Association is fond of saying, "Planning Pays Off!"