Putting your money it belong through Year-End Tax Planning
The Difference between Tax Preparation and Tax Planning
Tax preparation for the March 15th or April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren’t due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning. Getting a head start could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
Reduce Your Tax Liability
By taking certain steps now, before 2010 draws to a close, you can reduce the size of your tax bill otherwise due when you file your return next year. Especially this year, when Congress has inserted a handful of powerful but temporary tax breaks to get the economy moving again, you do not want to overlook any deduction or credit that you can take in 2010 to lower this year's tax bill. Managing what income you recognize or defer also can pay dividends as you focus on balancing your tax rates between 2010 and 2011, and beyond, with tax reform on the horizon.
Your Circumstances May Have Changed
Year-end tax planning is made more urgent in 2010 because of some significant tax law changes, both those that have taken place to stimulate the economy and those now on the horizon to pay for the recovery.
What is on the horizon, for 2010 and beyond, is also crucial to effective year-end tax planning this year.
Year-end tax planning is not only about what is happening in Congress and at the IRS. Addressing the changed circumstances in your life has always been a large part of year-end tax planning. What you planned for at the beginning of 2010 may not be what you are faced with now. Changes in your employment status, family, investments, or retirement plans raise new tax issues:
Plan for Losses
A special word about losses, especially as this difficult year draws to a close. Matching losses with gains is not necessarily a simple task in the tax law. Different rules apply to different losses. Losses can be ordinary losses, passive losses, at-risk losses, capital losses, hobby losses, casualty losses, gambling losses, or Code Sec. 1231 losses. Knowing the differences and acting before year-end to match them correctly can mean significant tax savings.
Plan for Deductions
Planning for deductions and credits at year-end can also get complex but can be equally as rewarding. Timing and qualification rules create traps and opportunities: