Tax time is right around the corner and it’s time to find last minute ways to cut your tax bill. There are several ways to decrease a tax bill even in the last month of the year.
The US government has renewed the Residential Energy Property Credit and the Residential Energy-Efficient Property Credit for 2011. With the possibility of these tax incentives no longer being available for 2012, it’s a great opportunity to upgrade your home’s insulation, windows, furnace, and air conditioning system. Solar hot water heaters, geothermal heat pumps, and wind turbines are also eligible for tax breaks.
The credit has been reduced from 30% to 10% this year, and the maximum tax credit will drop from $1,500 to $500. Only select Energy Star models will qualify so check with your sales person or contractor to make sure the model you select qualifies.
Another green way to save on taxes is to purchase a new plug-in electric vehicle. There are options available for both four-wheel cars under 14,000 pounds and two- or three-wheeled electric powered vehicles. These credits range from $2,500 to $7,500 depending on the type of vehicle purchased.
One of the easiest ways to cut your tax bill in the last days of the year is to donate to qualified non-profit charities. You can either donate cash or household items. Clothing, furniture, and toys are all simple items that can easily be taken to a donation center. Charities will also accept large items such as cars. Make sure to save your receipt on all donated items. Check out www.itsdeductible.com to help determine the fair value of donated items.
With the stock market being extremely volatile in the past few years, you may have stock or mutual fund shares that have either taken a large hit or increased substantially. You can donate appreciated shares to charities to avoid the capital gains tax. On the contrary, for shares that have underperformed, it’s a great time to unload these investments to save on taxes. The first $3,000 is deductible against ordinary income tax.
Another simple way to save on taxes for 2011 is to make your January 2012 home mortgage payment in December. The interest paid will qualify for the mortgage interest tax deduction.
Some states offer a tax break on college savings 529 savings plans for state income tax. Check with your state’s policies before fully contributing to your 529 plan. Another investment available to immediately lower your tax bill is a traditional IRA. For those with qualifying incomes, this type of retirement account can deduct contributions.
Self-employed individuals qualify for some of the best tax breaks. Consider upgrading your home office. Computers, printers, copiers, and furniture all qualify as write-offs for those that work from home. Don’t forget to tally all business expenses and mileage for your 2011 tax return.
Before rushing into these methods to save on taxes, make sure to check with your CPA as not everyone qualifies. For most of these tax breaks, you must itemize your taxes on your return.