You Still Have Time to Reduce Your 2010 Tax Liability

Although the 2010 tax year ended December 31st, and the IRS deadline is just a few weeks away, there are still things you can do to reduce your 2010 tax liability. This could mean a larger refund or a smaller balance due!

IRA Contributions

Contributions to a traditional IRA (not a Roth IRA) can be made all the way until Tax Filing Day, and deducted from your 2010 taxes. So, if you have not yet contributed the maximum $5,000 allowed per year ($6,000 for taxpayers over 50), consider making another contribution before April 18. It is beneficial to your future financial security, and can have a big impact on your taxes now! Just remember not to “double dip” and try to claim the contributions you make on your 2011 taxes as well.

SEP-IRA

Independent contractors and small business owners may be eligible for a SEP-IRA, essentially a retirement account designed especially for the self-employed. Contributions can be made until April 18, 2011 and claimed on your 2010 tax return. The maximum annual contributions for SEP-IRAs are $5,000 for taxpayers 49 years old and below and $6,000 for taxpayers over 50. The same rule about double dipping applies to SEP-IRAs too. If you claimed the contribution in 2010, you cannot claim it in 2011 as well.

Health Savings Account

If your health plan is of the high-deductible variety, a health savings account might be a great move for you. Any contributions can be deducted from your taxable income. You can claim deductions made whether you itemize deductions or not. Any earnings or interest are tax free, the account is portable, and contributions from your employer may be excluded you’re your income. Contributions can be made, and spent, up until the tax deadline.

Double Check Deductions and Credits

One of the biggest reasons people over-pay their taxes is that they miss deductions and credits for which they are eligible. It is your right as at taxpayer to pay exactly what you owe, no more, no less. Take the time to review your tax return to see if you might have missed any deductions (like these: commonly overlooked deductions) or credits. Go line by line, and see if anything jogs your memory. This extra step can go a long way in reducing your tax liability and saving you money.

Worried About Time?

If you have not filed your tax return yet, you might consider filing a request for extension – Form 4868 – right now. Best case scenario, you file on time, no harm no foul. Filing one extra form is a much better alternative than missing the deadline, and being subject to penalties! The IRS does not mess around when it comes to failure to file. Better safe than sorry! Of course, please remember that this is a filing extension, not an extension of time to pay. If you owe more on your taxes, you must pay your liability by April 18. If you don’t, the IRS will slap you with some pretty nasty penalties and interest.

Of course, make sure you work with your tax or financial professional to ensure you are eligible for these tax breaks. There are rules and limitations to everything in the tax world, so do your research.

Questions for the Tax Lady: January 5th, 2011

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: When is the earliest that I can file my tax return with the IRS?

I love that you want to get a jump on filing your taxes. In theory, you can file your taxes as soon as you receive all your W-2s, 1099s, or other tax-related documents. However, this filing season you might have to wait until mid-February to file. Congress waited until the very last minute to pass the “tax compromise” which means the IRS is still scrambling to update the tax forms and processing systems. So, who will have to wait?

1. Taxpayers who itemize deductions on Schedule A.
2. Taxpayers who claim the Higher Education Tuition and Fees Deduction.
3. Taxpayers claiming the Educator Expenses Deduction.

In addition to the delays, the IRS is urging anyone who falls into any of the three categories above to file electronically. With all the changes to the forms, filing electronically will ensure you file the updated versions of the forms and help you detect any mistakes before you file. No specific date has been given yet, but the IRS should announce it shortly.

So, if you claim the standard deduction and do not plan to claim the tuition and fees deduction, or the educator expenses deduction, you are free to file as soon as you receive all your tax information. Otherwise, you can spend the next month and a half getting organized so filing will be a snap!

Question: I am currently on a payment plan with the IRS, but my income has been reduced significantly over the past few months. Is it possible for me to renegotiate with the IRS to lower my monthly payment?

I commend you for getting out ahead of your financial issues, instead of waiting until you default on your installment agreement with the IRS.

Most IRS tax debt programs are based on your financial situation right now. So, when you income declines or you lose a job, you may be able to negotiate a lower payment. Your first step is to call the IRS (800-829-1040) as soon as you think you have a problem.

You will probably have to provide documentation for your decreased income, such as your W-2s or an updated profit and loss statement for your business. So, gather your documents and call the IRS. And good luck on getting a little relief in this still-shaky economy.

Tax and Finance Savvy New Years Resolutions

The New Year has begun and it is a time when people all over the world set goals or resolutions for themselves. Lots of people join gyms or decide to start a new diet, but in addition to resolutions that are good for your health, I think it is a good idea go with a few that are good for your wallet. Here are my favorite tax and finance savvy New Years resolutions.

Don't Wait until April to Think About Taxes

Most Americans wait until March or April to start worrying about their taxes. However, I recommend making a short term goal to start working on your tax return this month, and try to get it filed some time in February. That way you can get your refund nice and early, and also avoid crowded tax preparation offices if you are going to seek professional help for your return.

Stay on Top of your Tax Planning

You shouldn't let the whole year go by without thinking about taxes again. By staying on top of your tax planning throughout the year then you can help keep your liability as low as possible. Also, you can prevent being faced with an unexpected tax bill next April.

Give More of your Time to Charity

In addition to donating your unwanted household items, which all will result in a tax deduction, why not give more of your time to charity this year? Since the recession began many nonprofit organizations have been struggling, and by spending a few hours volunteering won't cost you anything out of pocket. Additionally, if you do have to purchase supplies, or drive while volunteering then you can deduct these expenses.

Don't Rely on Credit

Cutting back on credit cards is always a good New Years resolution. In fact, in 2010 fewer Americans used credit then in years prior. Now is a great time to jump in on the trend. Instead of relying on credit try to make a strict budget and use your ATM card instead of your Visa or MasterCard.

Live a Greener Year

These days there are plenty of incentives to living a greener life. In addition to helping the planet you may also be able to qualify for a federal tax credit. For more information on which purchases qualify, check out EnergyStar.gov.

Start Planning for your Retirement

It is never too early to start planning for your retirement. If you do not already have an account, then make it a resolution to start an IRA or 401(k) in 2010. If you already do have a retirement account, then you could make it a goal to max out on your contributions.

Save for a Rainy Day

These days many Americans are struggling to pay their bills. However, if you can afford to do it, then try to begin setting aside money from each of your paychecks. You never know when a rainy day will hit, and you will be better equipped to deal with it if you have a little extra money set aside.

7 Steps to an Early Tax Refund

Tax season is closer than you think, so to get your tax refund back as quickly as possible, you need to get on the ball. I know, you’re all wrapped up in the holidays, but by starting your tax season chore list now, you’ll be ready to file and get your refund fast. Where do you start? MSN Money put together 7 steps to take in order to get your tax refund early. I have included a few of the items below, but click here for the full list.

1. Get started

The first step is the hardest. Stop thinking about it and get moving. Until you actually start your return, you'll never finish it. And that's probably going to slow down your refund.

If you don't have all your numbers, just put your name and address on the form. It will get you in the mindset to move forward.

Your first step is to break the inertia. As my father used to say, a trip of a thousand miles begins with a traffic jam. Break that jam and get moving.

2. Accumulate the data

January is collection month. By the second week of February, you should have the numbers in hand. Make sure you've gotten W-2s and any statements from your brokers and banks. You'll receive 1099 forms for any interest, dividends and stock sales.

Your mortgage company will send you a Form 1098 for any interest and real-estate taxes paid. Get those statements together and review the numbers. They're not always right. They won't include any interest you paid at the very end of December because the creditor won't have received the money until 2011.

3. Put the numbers in IRS categories

Neither the Internal Revenue Service nor your CPA is going to add up those numbers for you. Well, maybe your CPA. Many years ago, a psychiatrist near Philadelphia paid me $150 an hour to open his mail because he couldn't be bothered.

Continue reading at MSN.com...

Trimming your Tax Liability Before the End of the Year

This year, end of the year tax planning has become even more confusing. Why? Because Congress continues to stall on taking any action on the Bush tax cuts; this inaction could result in significant tax increases on all Americans.

Obama's Compromise

President Obama put together a deal with Republican leaders last week to extend all of the Bush tax cuts for two more years. The compromise also included an extension of unemployment benefits and stopped the estate tax from increasing to 55% in 2011. However, the House of Representatives rejected the bill and have yet to pass any other tax legislation.

Why the Uncertainty is Problematic

Tax planning in prior years has always been pretty straightforward. Make donations to charities; make an extra mortgage payment, max out on your 401(k) contributions etc. However, with the possibility of a tax rate increase some experts are suggesting taxpayers wait until next year.

If your tax rate does increase next year, then it would be better to defer any deductions to 2011, when they will be more valuable. Deductions lower your taxable income, unlike credits, which are dollar for dollar benefits, so if tax rate goes up in 2011 then all of the standard end of the year deductions might be worth more if you wait until January.

What you CAN do

Although many tax laws are up in the air, there are some things you can do now that will help lower your tax liability without worry about next year’s tax rates. First of all, if you are a homeowner then you might want to consider making energy-saving improvements to your home such as adding dual pane windows or purchasing an Energy Star water heater or air conditioning system. The 30% (up to $1,500) tax credit is scheduled to expire at the end of the year. For more information on qualifying expenses, check out EnergyStar.gov.

Other Uncertain Tax Benefits

The energy credit isn't the only tax incentive currently in limbo. The new health care legislation will ban using funds from flexible spending accounts to purchase over the counter medication and claim it as a deduction starting in 2011. If you qualify for the medical expense deduction then it might be a good idea to stock up on your over the counter meds while you can still deduct the expenses.

Another deduction that might expire at the end of the year is the $250 deduction for educators. If you are a teacher, or work in a classroom then be sure to take advantage of this classroom expense deduction while you can.

10 FAQs About End of the Year Tax Planning

I know, the holidays are upon us, and the last thing anyone is thinking about is tax season. But as New Year’s creeps into view, this is your last chance to make money-saving moves for your taxes. Earlier this week the RDTC Tax Help Blog posted an entry with answers to 10 common questions about year end tax planning. You can find a snippet of the article below, or click here for the full text.

1. Why should I start planning now?

Most taxpayers do not plan ahead for the coming tax year, simply because they do not want to start stressing about taxes during the holidays. However, choosing to plan ahead will actually make things easier and less stressful come tax season. You should look at tax planning as a stress-preventative measure.

2. What are the advantages tax planning?

Besides reducing stress, end of the year tax planning can also save you a lot of money. Tactics like making an extra mortgage payment or paying state taxes in advance can quickly and easily reduce your tax liability. If you wait until the New Year begins, it will be too late to take advantage of these strategic tax moves.

3. What tools do I need for end of the year tax planning??

Year-end tax planning does not need to be difficult, especially if you have your financial documents organized. You should also get a copy of your tax return from last year as well as a calculator and pencil. It is also a good idea to have access to a computer with Internet so that you can research deductions and credits.

Questions for the Tax Lady: November 9th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: Roni, I'm going to be moving soon and I have boxes full of old pay stubs and receipts that I've had for at least ten years. How long should I hold onto these tax records? Do I need to move them all to my new place?

Answer: Ah, yes, I think we all have boxes of records we no longer need but are terrified to throw away. There are different rules for how long you need to keep various tax-related records. For your paystubs, anything over a year old, you can shred.

Question: I do not want to have a large tax bill next April. What are the easiest end-of-the-year tax planning moves to make?

Answer: The best thing you can do right now to ensure your tax bill will be manageable: Do a tax dry run. Use the information you have now – like income, tax payments, educated estimates about expenses and deductions – and see what your tax bill looks like. You may want to try using a tax calculator to see what your estimated tax bill looks like.

If your dry run shows you will owe a big chunk of change, you can make some charitable contributions, make your January mortgage payment before the end of the year, or take advantage of soon-to-be-expiring tax credits for making green upgrades to your home. You still have plenty of time to make these simple money-saving tax moves and reduce your tax bill come April.

If you are looking at a big fat refund check, adjust your tax withholding and enjoy the extra cash now, when you probably need it most. Then next year, adjust your withholding to just cover your projected tax bill, and keep more cash in your pocket every month.

Mid-Year Tax Planning: The Perfect Summertime Activity

The year is now half over and although most Americans wait until next April to think about taxes, I highly recommend tax planning throughout the year. The summer is a great time to review your finances since you will still have six months to make any changes to your withholdings, or take action to lower your tax liability.

Mid-Year Tax Projection

Since the year is half way finished, you can easily estimate what your total income for the year will be. Unless you anticipate a new job or are self-employed and unsure of your earnings for the rest of the year, you can simply add up your wages from January through June and double it. Using the 2010 income tax brackets you can then calculate your total federal tax rate. Look to see what you have already paid in federal taxes, and if your total taxes paid is less than half of your yearly tax liability then you might want to consider adjusting your withholdings or making an estimated tax payment.

Review your Withholdings

If you are underpaying on your federal taxes, you might want to adjust your withholdings. For wage earning employees, you can simply ask your employer for a new IRS Form W4. Either change your allowances or have an additional dollar amount withheld from your paychecks. If you have been overpaying the IRS, you might want to change your withholdings to have less taken out of your paychecks. Although you might not get as large of a refund in April, you will have more money in your wallet each month!

Estimated Tax Payments

If you are self-employed or have decent capital gains throughout the year, it is especially smart to calculate your 2010 tax liability. The IRS will asses a penalty if you underpay your taxes, so it might be a good idea to make an estimated tax payment. The most recent quarterly tax payment due date was June 15^th, but you can always make a late payment. The next payment is due Sept. 15. To learn more about estimated tax payments check out this entry on the Roni Deutch Tax Center – Tax Help Blog.

Organize your Files

When you have a few hours free, it might be a good idea to look over your financial records and tax related documents. Make sure you have documentation for any tax deductions or credits you plan to claim: all of your pay stubs, and receipts for any business or travel expenses you intend to write off. If you are missing any receipts you should try looking for documentation via your credit card or bank statements. This will be easier to do now, instead of six months from now when you might not exactly remember what day it was you took that client out to lunch or where you went.

Retirement Accounts

Depending on your unique financial situation you might want to consider opening a retirement account this summer. If you have a little extra money after your summer vacation why not use it to setup an IRA or 401(k). Some retirement plans – such as traditional IRAs – have significant tax implications and can lower your total tax liability.

Give to Charity

Another great way to lower your tax liability is to make charitable contributions. You could donate your winter clothing, as you will not need it in the hot summer weather, or any other household items you no longer need. Additionally, as the BP oil leak continues to spew oil into the Gulf you could make a monetary donation to a group working on the cleanup such as the National Wildlife Foundation.

10 Smart Tax Planning Moves to Make in 2010

A lot is changing in the tax world. Many of the changes are intended to improve the state of the U.S economy. While next year’s tax return should not look very different from this year’s, there are a few changes in particular which taxpayers should be aware of and prepare for throughout the year. To help my readers looking for some tax planning tips for 2010, I have compiled the following list.

1. Stay Organized

Although being aware of tax changes will certainly serve you well, the information will do you little good without the receipts and documentation. Throughout 2010, keep a filing folder or cabinet neatly organized with important receipts, documents, and tax information, which will be needed, come tax time.

2. Childcare Tax Credit

The childcare tax credit is currently set to $1,000 for each qualifying child, provided guardians do not exceed the income limits. However, President Obama recently said, at his State if the Union address, that he was planned to double the childcare tax credit to make life easier on struggling parents given the rough economy. While it is too soon to tell when or if this proposal will go in to place, it is definitely a credit for parents to look out for.

3. Estate Tax Changes

If you had a loved one, who would normally be subject to estate taxes, pass away in 2010, it is important to know that these taxes will not apply this year. If you are the heir or one of the heirs, it will lie on you to make the proper tax moves with the inheritance. On the other hand, if you have a will, you may want to make temporary changes to your will for the year if you planned donate a larger portion to charity or avoid over taxation, which you would normally be subject to. Remember to reverse the changes next year, as the estate tax will be higher than ever when it returns. These changes are quite drastic and if you are confused, you may want to consider hiring an estate tax attorney to make sure you make the right choices.

4. Making Work Pay Errors

When the Obama administration instituted the making work pay credit last year, many working Americans were happy to receive an additional $400 by the end of 2009 on their pay stubs. However, a major error was overlooked in the distribution, and some taxpayers who had more than one job and received the $400 for each job. The credit is was intended to apply to only one job. Taxpayers who experienced this error will be required to fill out a schedule M form in 2010 to return any overages. The credit will also be given this year, but the error is unlikely to repeat itself. However, whereas last year’s credit was distributed over 9 months, this year’s credit will be distributed over 12 months, so expect a smaller bump to your paycheck.

5. Roth IRA Changes

With the income limits for converting an IRA to a Roth IRA eliminated for 2010, a great potential retirement saving move has been opened to many Americans who did not qualify for it before. However, be aware of conversion costs in the form of previously untaxed amounts. Luckily though, when the change was made, lawmakers put some thought into this and are allowing taxpayers to pay half of the conversion costs in 2011, and the other half in 2012.

6. Energy Efficient Upgrades

If you were planning on making energy efficient upgrades to your home, you may want to do so now, as the tax savings approved in last year’s stimulus bill are set to expire at the end of the year. The highly beneficial changes allow you to claim up to $1,500 in credits, and possibly even more if you plan to install solar panels to your home.

7. Health Care Changes

Although President Obama had hoped to have healthcare legislation passed last year, the bills are still on the table and no decisions have been made just yet. However, legislation is supposed to be passed in coming months, and some tax changes may come with it. While most changes effecting tax law will not be put in to affect until months or years later, a few tax changes could be streamlined and affect your next tax return. Be on the lookout for these changes, and make the appropriate tax moves to offset any big changes.

8. Homebuyers Tax Credits

The recently expanded homebuyer’s tax credit is still eligible for another few months. If you were hoping to buy your first home in 2010, entering in to a binding contract by or before April 30, 2010 will allow you to take the $8,000 tax credit on either your 2009 or 2010 tax return. The sale will need to be settled by June 30, 2010 in order to fully qualify for the tax credit. In addition to the first time homebuyer’s credit, a long-time resident credit was added, in the amount of $6,500 for taxpayers who purchased a second primary home. The requirements for the long-time resident credit are that the taxpayer must have owned and lived in the first home for five consecutive years out of the past eight years.

9. Required Minimum Distribution Returns

Taxpayers who are over the age of 70-1/2 and hold certain savings plans such as a traditional IRA caught a break in 2009, when the required minimum distribution (RMD) was dropped for the year. However, RMDs have been re-instituted for 2010, and taxpayers who are required to pay them will need to take out the minimum amount to avoid being penalized.

10. Stay Updated

As you can see, several potential tax changes will occur 2010. In order to avoid being left uninformed come tax time 2011, stay updated on tax changes throughout the year. Check the IRS newsroom occasionally to see if they have any tax announcements that pertain to you. Also check out my tax center’s Tax Help Blog as well as my personal blog for daily tax tips and news—I try my best to stay on top of the newest tax news and as soon as I know, I will post the information to my blogs.

Top 10 End of the Year Tax Planning Tips

Although you may be used to waiting until April to worry about your taxes, this could be a big mistake. Many tax breaks are secured through actions taken before January 1. And guess what – it is already November and the holidays are just a few weeks away! So, you need to take advantage of the pre-Thanksgiving lull to get your tax situation in order to maximize your tax savings come next April. And as you can see from the following paragraphs, there are plenty of things you can do now to make the upcoming tax season a little less stressful—and a finacially successful one.

1. Make Upgrades

If you were thinking about making energy efficient upgrades to your home, you may want to do so before the New Year. The deductions and credits available for energy efficient home upgrades are larger this year than they were in 2008, and it is unknown if Congress will extend or decrease those credits for 2010. For more information on this year’s “Green” tax incentives, check out this entry I posted earlier in the year.

2. Give Now

During the holiday season, most of us feel more charitable then usual, with toy drives for underprivileged children and Santa Clauses asking for donations on every street corner. However, this time of the year is also the last time you can make a charitable donation and deduct the amount from your 2009 taxable income. Be sure to take a minute to look over your donation receipts from this year so far to see if you making a few extra donations will significantly reduce your tax liability or not.

3. Make 529 Contributions

If you have children, then you might want to consider opening a 529 plan, or if you already have one setup then you could max out your contributions. There are two different types of 529 plans, but both have significant tax benefits. Using any extra funds you have at the end of the year to help pay for future college bills is a great, and tax friendly way to prepare for the future. To learn more about the different 529 plans check out this RDTC Tax Help Blog entry on tax friendly ways to save for your children’s education.

4. Offset Large Capital Gains

If you had a high amount of capital gains related income, then you may want to offset your profits by selling off a few bad investments or stocks. You can then claim a capital loss and reduce your taxable income. However, keep in mind there is a $3,000 limit—but the rest can be carried forward into future tax years. Alternatively, you can offset your losers by selling off some winners. If you are not experienced with capital gains and losses, then I highly recommend seeking the help of a qualified professional.

5. Non-Charitable Gifts

It is the season of giving, right? In addition to charitable contributions you can also give up to $12,000 ($24,000 for a married couple) to as many individuals as you wish without incurring a gift tax penalty.

6. Get in Order

With the New Year just around the corner, it is never too early to begin getting your financial records organized for next tax season. By knowing exactly how much money you have made this year, and projecting your total taxable income for the end of the year, you can decide if you need to take any actions concerning income and expenses to further lower your tax liability or not. You can also throw away any files that are old or unnecessary, and create a new folder in your filing cabinet for 2010.

7. Adjust Withholdings

If after reviewing your taxable income, you realize that your tax bill will be higher than you had expected, now is your last chance to have your employer adjust your withholdings. It will mean less cash in your remaining paychecks for the year, but at least you will not be hit with a massive tax bill come April. On the other hand, if you have overpaid your taxes throughout the year then you could lower your withholdings and get a little extra holiday cash.

8. Prepay Mortgage and Taxes

If you are looking for ways to increase deductions and lower your taxable income, then you can always prepay your next mortgage payment, or pay your property taxes early. Just remember though that this means you will have one less mortgage payment to make next year, which will result in a higher tax bill in April 2011.

9. Retirement Payments

If you have not contributed the maximum to your 401(k) or another tax friendly retirement account, then you want to do so before the years end. This will help lower your taxable income, and is also a good investment in your future.

10. Deferred Income

Deferring income is one of the most popular end of the year tax planning tips, and it is actually pretty easy. If you are retired then you could postpone an IRA withdrawal, or if you are self-employed then you can easily defer a payment from a client. However, before you defer any income you want to be absolutely sure that you will be in a lower tax bracket next year. Otherwise you could just be postponing a large tax bill.

Planning Early for Tax Season

Yesterday, my team shot another video for our tax tips video series. In this episode, host Edward Lester discusses how to plan early for next tax season. Although April 15th is still a few months away, it is never too early to start preparing. You can watch the embedded video below and be sure to head over to my YouTube channel to subscribe to my videos.

Year Round Tax Planning Tips

Last week the Roni Deutch Tax Center – Tax Help Blog posted a new article discussing some year round tax planning tips. As the blog entry explains, even if you are a regular wage-earning employee and do not have to worry about making quarterly payments, you should still get in the habit of thinking about your taxes all year long. It will make tax season less stressful, and by planning your finances in advance you can keep your tax liability as low as possible. Below is a snippet of the article with some fall tax tips, but be sure to check out the full entry at RDTC.com.

Fall (September – November)

When your children go back to school and the leaves start falling from the trees, you need to start thinking about taxes. The year is coming to an end, and if you have a steady job then you should have a pretty good idea about what your total income is going to be for the year. Once you calculate your yearly income, you will know what tax bracket you fall in, and can make any necessary adjustments to your withholdings. If you have not paid enough, you can have your employer take out additional taxes from your paycheck. It will mean less money each month, but it sure beats having to pay the IRS a large payment in April. On the other hand, if you have overpaid your taxes then you can lower your withholdings and get a little extra holiday season cash.

The fall months are also your last chance to make any longer-term tax moves that cannot be made last minute come December. For example, if you plan to make a large charitable donation, then you will want to make it now so that you can make sure you get proper receipts and documentation. Finally, if you are trying to buy a house and take advantage of the $8,000 Federal tax credit then you are going to want to make sure you close escrow during the fall months. The credit expires on December 1st, and is unlikely to get extended into next year.

Personal Finance: Now's The Time To Plan Tax Savings

This morning Reuters.com posted a new article stressing the importance of starting to plan for tax season now, and I could not agree more! By planning early you can make a conscious effort throughout the year to reduce your total liability! You can read a segment of the article below, or check out this article I posted on the topic earlier this year: Tax Planning for 2009 - How to Benefit from Recent Tax Law Changes.

High debts and recession anxiety have prompted many consumers to cut their expenses to the bone. But there's one other place they could be saving, and that's taxes.

Mid-year is the best time to start planning a year-end tax strategy. Accountants and other tax preparers aren't as busy as they are in the spring and the winter, so they have more time to meet with you and look over your financial situation. If you use a professional to help you at tax time, consider setting up an appointment this month. You'll get a lot of personal attention.

If you're a do-it-yourself tax planner and filer, it's still a good time to check out your status and lay plans for the remainder of 2009. You'll have five months to make the financial moves that will save you money when you file your income taxes for this year. And it's not just about income taxes: This year there are some sales and property tax moves that can put more cash in your pocket quickly.

Here's a grab bag of summer maneuvers -- from renegotiating your property taxes to grabbing the car tax break -- that you can use now to keep more money for yourself through 2009 and into 2010.

Appeal your property taxes. In the last three years, average U.S. home prices have fallen by about a third, according to the S&P/Case-Shiller Home Price Index. But it's unlikely your local or state government has been dropping your home's assessment or property taxes by the same percentages. It may be too late for this year's tax bill, but most states do have relatively easy procedures to follow if you want to appeal your assessment or the amount of your taxes. There's no reason not to do it. Check the website of your county or state treasurer's office to see how to do this.

Get organized early. Take a look at your year-to-date earnings and compare them with last year's. Remember that there is a Making Work Pay tax credit in play that will pay individuals $400 and couples filing jointly $800 for 2009. If you haven't already cut your withholding at work for this, you may be able to trim your withholding for the rest of the year. You may also be able to reduce your estimated tax payments if you typically earn a lot of money in interest income and find yourself earning less than usual this year. Start collecting and keeping all pertinent receipts. For example, you can get a child-care tax credit for the cost of day camp for kids under 13 if you are busy working while the kids are being bussed to the pool and park.

Some Breathing Room for IRAs

From the Wall Street Journal.com:

Retirees who ignore the annual distributions they are required to take from their individual retirement accounts usually run a big risk -- in the form of a 50% excise tax on the amount they should have withdrawn. But not next year.

On Tuesday, President Bush signed legislation that suspends the rule requiring older Americans to take withdrawals from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s.

But there are hitches. The suspension lasts for just one year, 2009. And while intended to give beaten-down retirement accounts time to rebound, the new law may also present confusion, particularly for those just starting to take required withdrawals.

"The [existing] rules are confusing enough," says Ed Slott, an IRA consultant in Rockville Centre, N.Y. "Now, more people than ever are going to get tripped up."

Here are answers to questions about how the new law will affect taxpayers in 2009 and beyond.

Q: How do the existing rules governing IRA withdrawals work?

A: Those who contribute to tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, don't pay income tax on the money they put into these plans. But eventually, Uncle Sam requires them to take the money out, and pay income taxes in the process. "The government gives you a tax break when you make your contributions. When you retire and are presumably in a lower tax bracket, it wants the tax revenue it deferred," Mr. Slott says.

Normally, IRA owners must begin withdrawing money from these accounts by April 1 of the year after they turn 70½. That means that someone who turned 70½ in 2008, for example, has until April 1, 2009, to take his or her first required distribution. To calculate how much to withdraw, look at your account balance as of the previous Dec. 31, and then divide that figure by your remaining life expectancy. (Life-expectancy data can be found in actuarial tables in IRS Publication 590.)

You can always withdraw more. But if you take less, you will be subject to the 50% penalty. These requirements also apply to 401(k)s and some other employer-sponsored plans, but not to defined-benefit pension plans or Roth IRAs. (If you are still working, you aren't required to take distributions from your current employer's retirement plan.)

Q: What impact will the new law have?

A: The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the losses they sustained this year. Why? "They'll have more dollars working for them in the event of a stock market rebound," says Elizabeth Drigotas, a principal at Deloitte Tax.

Unless Congress decides to extend the moratorium on mandatory distributions, those over age 70½ -- along with those who have inherited IRAs or 401(k)s -- will be forced to resume taking withdrawals in 2010.

End-of-Year Tax Planning Takes Election Year Twist

Earlier in the week, I was quoted in an article released by the Associated Press about end of the year tax planning. Below is a quote form the article, including my tip!

Heading into the holidays it's likely that you're going to be thinking a lot about money. And this time of year tax advisers like to remind us that there are ways to minimize our tax bill next April. But with an economic downturn in full swing and a new president waiting in the wings, that typical advice is coming up against a range of uncertainties this year.

Since President-elect Barack Obama has pledged to raise taxes for families making more than $250,000 and increase capital gains taxes, for instance, she said some of the usual year-end planning advice might soon be reversed. As 2008 draws to a close, here are some step you can take to minimize your taxes.

GET ORGANIZED

The first step in the planning process is to make sure that your records are organized and up to date, said Roni Deutch, a California-based tax adviser. "Without records and without substantiating your deductions, you have no deductions," she warned.

Read the rest of the article at Forbes.com