The holiday season is upon us and 2010 is just around the corner. With everything else on your plate, we have to remind you that the tax year is coming to a close - that is our job. Here are a few last-minute tips to help you reduce your tax bill.
In the market for a new car?
In case you missed the Cash for Clunkers deals earlier this year, you are not totally out of luck. Until Dec. 31, you can still get a tax break for purchasing a new vehicle. Buying a new vehicle after Feb. 16, 2009, and before Jan. 1, 2010, affords you the opportunity to deduct the sales tax on as much as $49,500 of the cost. Eligibility for the deduction phases out at $125,000 of adjusted gross income for singles and $250,000 for individuals who are married or filing jointly. You do not have to itemize deductions to take advantage of this break.
And please note that you are not limited to a total of $49,500 for all purchases; rather, the limit applies to each vehicle you buy. For instance, if you buy two vehicles at $35,000 each, you get the sales tax break for the full amount on each vehicle. Those who live in states with either low or no sales tax are not out of luck. The law also applies to excise taxes and fees based on the sales price of the car. If you're in the market to purchase a new car, do it before Dec. 31.
Loss on 401(k) corrective distributions
If you received a corrective distribution from a 401(k) plan, remember to take into account any losses in your year-end planning. Many who made contributions in 2008 bought into the market before the late-year crash. When they received their 2008 corrective distributions, they received less than they paid in. If you are one of these lucky ducks, your 1099-R will show the full amount of your deferral, which you must report in income. To claim a loss for the difference between your deferral and what you actually received, you can include the loss on line 21 of your 2009 Form 1040.
DonÂÂ’t forget that the Internal Revenue Service requires you to support many deductions with contemporaneous documentation. Basically, this means you need to keep a log of certain things, such as business mileage. While it is certainly appropriate to deduct expenses related to business use of your personal vehicle, the Internal Revenue Service requires you to maintain a log of that use. Make sure you capture beginning and ending mileage each time you make a business trip. Equally as important, make sure you take a few minutes on Jan. 1, 2010, to write down the ending mileage on your vehicles. This will help in supporting any mileage deductions for 2009 and serve as your beginning point for 2010 deductions. Remember to keep in mind the mileage deduction for medical purposes. Additionally, keep track of business expenses and out-of-pocket costs for charitable trips. Expenses in connection with travel for charitable organizations (board meetings, retreats, etc.) could also be deductible as donations, so keep a record of them as well.
If you plan to purchase a heavy truck for the Internal Revenue Code Section 179 deduction before Dec. 31, contemporaneous records are critical. You will, upon audit, be required to prove that you used the vehicle for business use more than 50 percent of the time. Records are essential in proving that usage.
Last but not least
As a final reminder, do not forget to make any deductible payments before the end of the year. Be sure you date any charitable contributions, mortgage payments, state tax payments and other deductible items on or before Dec. 31 - and be sure to put the check in the mail. If you canÂÂ’t cut the check, donÂÂ’t forget plastic. While being careful not to place more of a debt burden on yourself than you can handle, credit card payments are considered equal to check payments for the purpose of deductions.
The holidays are not just a time of good cheer. This is also a time to exercise good sense to position yourself for a great 2010. Give us a call in early December so we can make plans to help you take advantage of last-minute tax deals before the New Year.