Kevin McCoy, CPA

We are still about 4 months until the end of the year…can you believe it’s that close?  Here are a few things you can do to lighten your tax burden for April 15, 2010.

• Improve your home.  Winter is coming – you and I both know heating costs are going to rise.  Be pro-active by adding insulation or installing new windows and doors.  You can even qualify for a tax credit.
• Harvest capital losses.  Sell any losers in your portfolio and you can deduct up to $3,000 of those losses against your regular income.
• Increase retirement plan contributions.  Pre-tax deferrals to a 401(k), 403(b), IRA will have the dual effect of increasing savings and lowering your tax bill.
• Donate!  Have a favorite charity?  Why wait until Christmas-time to give?  Alternatively, you could clean out your closet and donate those clothes or other goods you never use.  (A great way to de-clutter as well).  Didn’t trade in your clunker?  Donate it to a charity.  Just make sure to document what you give and get a receipt.
• No RMD in 2009.  If you’re taking required minimum distributions from your IRA, a special provision for this year only allows you to leave it in and not be penalized.

The third quarter will close at the end of the month, that would be a good time to recheck your withholdings and make sure you aren’t surprised by a large balance due.  Use my method or call me if your situation is more complicated…I’m here to help.

What strategies are you using to minimize your taxes?  Please share them in the comments.

Not sure I agree with this, even though as a 2 dog home we would certainly benefit.

I doubt we even get to half of the $3,500 deduction, but at a 25% tax rate this new deduction could save you about $875.  That’s a lot of dog chow.

What do you think – another example of Congressional pork or a legitimate deduction?

If you’re anything like me, I hate giving the government an interest-free loan all year only to get a huge refund when I file my income tax return.  Or maybe you like getting a refund and want to know an estimate of the amount in advance.  Here’s a quick and easy way I use to estimate my anticipated refund or balance due for 2009*.

1) Find your “total tax” from your 2008 return.  If you filed a Form 1040, this will be line 61.

2) Find your latest paystub and locate your current pay period and year-to-date Federal withholding.

3) Figure out how many pay periods you have left this year.  Example, I am paid bi-weekly and have 9 paychecks remaining.

4) Take your current pay period withholding from step 2 and multiply it by the number of pay periods left from step 3.

5) Add the result from step 4 to the year-to-date withholding from step 2.

6) Compare the result of step 5, to the figure in step 1.  If step 5 is greater, that is your estimated refund.  If step 5 is less, you may owe that much come April 15th. (If it’s too low, you may be subject to penalty, so watch out.)

Other considerations:

-if you have a spouse that works, before going on to step 6, go back to step 2 and figure his/her amount, then add it to your step 5.

-if you receive a bonus or other irregular income, you may want to subtract that withholding out at the beginning (since it is not recurring) and then add it back in after step 5

-if you pay estimated taxes,  figure the number of estimates you have left to pay and add those amounts to what you’ve paid so far

*Note this works well for those with W-2 withholding and other income that is fairly consistent from year-to-year.  I’m thinking of items like interest & dividend income, capital gains, etc.  If you have a more complicated tax situation or something out of the ordinary this year feel free to contact me at kmccoy (at) cdnscpa (dot) com.

Recent legislation has presented taxpayers with several opportunities to improve the energy efficiency of our homes and receive a tax credit to offset some of the cost of those improvements.

For example, did you know that adding new energy efficient windows or doors could save you $1,500?  The American Recovery and Reinvestment Act of 2009 brought back most of the credits that were available in 2007 but disappeared in 2008.  One of those provisions is a 30% tax credit (up to $1,500) on qualified energy efficient home improvements including exterior windows and doors, insulation and some heating or air conditioning systems.  That is, you can take a credit of 30% of the cost of the improvements, up to a maximum of $1,500 (previously this was capped at $500).

Another provision applies to energy efficient property such as geothermal, solar and wind equipment.  Again, a credit of 30% of the cost is available.

In addition to home improvements, you can also receive a tax credit for purchasing a hybrid vehicle.  Here is the list of 2009 models that qualify.  2010 models can be found here.

If you have any question on how to take these credits or if property you’ve already purchased qualifies, please contact me via email at:  kmccoy (at) cdnscpa (dot) com.