Continental Who's Who

Tax Tips From A Seasoned Pro

April 15 is fast approaching and before you put the finishing touches on those returns, below are a few items to consider - for this year’s return as well as next year’s. It’s always a good idea to think about your income taxes from two perspectives, according to Robert Fishbein, vice president and corporate counsel for Prudential Financial. First, what can you do now on your tax return to reduce your income tax liability? Second, what types of tax planning should you do to position yourself best for 2010 and beyond?

Tips For 2009 Returns While there are many things to think about for your 2009 income tax return, below are a few that can be easily overlooked: If you are a first-time homebuyer then you may be eligible for the first-time homebuyer tax credit of 10 percent of the purchase price of your new home up to $8,000. Make sure you have all the documentation you need to support this claim, like the Form HUD-1 Settlement Statement, since the IRS will be on the watch to make sure that claims are legitimate. Also, since there are documentation requirements for the credit you will have to file a paper return and are not eligible for electronic filing.

Another item to keep your eye on for 2009 is a possible income tax credit of 30 percent of the cost of an energy-efficient improvement to your home up to $1,500 (for 2009 and 2010 combined). The credit can be available for such things as adding insulation, energy-efficient windows or energy-efficient heating and cooling systems. The IRS has issued guidance on what qualifies as “energy efficient” for purposes of the credit, but check with the manufacturer of the product to make sure it qualifies for the credit and keep your receipt to document the purchase.

Both the first-time homebuyer credit and energy credit reduce your tax liability dollar for dollar. You don’t want to leave these valuable benefits on the table when completing your 2009 income tax return.

Remember also that you can make an IRA contribution for the 2009 tax year until the due date of your return, or April 15 this year. So even if you have not yet made your 2009 IRA contribution it is not too late. And while you are at it, why not make your contribution for 2010 and lock in those savings now? There is no better way to secure your retirement than by saving as much as you can each year. Finally, one commonly overlooked item on income tax returns is a special $1,000 deduction for real property taxes paid by an individual who does not itemize deductions. There are many individuals who own homes who do not have high enough deductions to itemize and choose the standard deduction, especially in states where there is no income tax. However, if you do pay real property taxes and you do not itemize there is a special tax law provision that allows you to deduct $1,000 of the property taxes paid -- at 25 percent that is a $250 savings. Preparing For Next Year’s Return 2010 is a unique tax planning year because the Bush tax cuts are scheduled to automatically expire at year end, which means that ordinary income and capital gains rates are going up unless Congress takes action. This flips traditional tax planning on its head since the traditional planning approach is to delay income and accelerate deductions to try to minimize your tax liability. But if rates are going up you may want to pay taxes now at rates that are lower than in the future and you may want to delay using deductions for when rates are higher and more valuable. One example of accelerating income would be to contribute to an after-tax retirement vehicle like a Roth 401(k) or a Roth IRA. Since you are paying the income tax up front you can pay the tax at what might be lower rates today. In exchange you are creating an income tax-free retirement asset, subject to satisfying the applicable age and holding requirements.

An example of how you can delay an income tax deduction until 2011, when rates may be higher and the deduction more valuable, is choosing to make more charitable contributions in 2011. If you typically make a charitable gift at the end of the year, by waiting until January you may increase the value of that deduction.

Courtesy of ARA Contents

Prudential Financial, its affiliates, and their licensed financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.

Prudential Financial, Inc, Newark, NJ.

Writer: Continental Who’s Who^® Member Author: Courtesy of ARA Contents