Holiday Tax Moves to Make Now

With Thanksgiving just around the corner, taxes are probably not first and foremost in your mind right now, but there are some smart moves you can make between now and the time the big ball drops in Times Square that will make a real difference with it comes time to deal with the IRS next April.

Boost Your 401(k) Contribution – If you have enough in cash savings set aside for emergencies and your monthly budget allows for it, consider upping your 401(k) contribution. You’re allowed to contribute up to $16,500 of your earnings tax free (in addition to any company matching), and that limit gets bumped to $22,000 if you’re over 50. If you don’t have a 401(k) at work, consider setting up an IRA or Roth IRA, recommends Charles Sizemore, editor of the Sizemore Investment Letter. If you’re self-employed and have the cash flow to allow it, you can shelter as much as $49,000 per year in a SEP-IRA.

Give Your Stuff Away – Clean out your closets, garage, attic and spare rooms, and donate clothing and household goods you no longer use to your favorite charity. The IRS allows a deduction for the fair market value of all non-cash contributions that are in good condition. If you’re planning on a larger than normal contribution to your favorite charity, do it before Dec. 31st to lower your taxes this year.

Be sure to get a receipt from the recipient organization and keep it with your tax records. Also, if you’re giving away an item worth more than $5,000, you’ll need a qualified appraisal with your tax return. Know too, that if you offer up your stuff to a for-profit resale store or if you sell it on a consignment basis, and you get a percentage of the sale, the IRS won’t allow that as a deduction.

Give Your Money Away – Each year, you can give up to $13,000 each to an unlimited number of people without any gift tax or estate tax ramifications.

If you choose to give your money to a charity, do your homework. Beware of scammers with names similar to legitimate organizations. A good place to start your research is at one of these websites:

www.give.org
www.charitynavigator.org
www.guidestar.org

A Charitable Loophole Just for Seniors – Seniors can reap tax benefits even without itemizing. A little-known tax planning tip involves charitable contributions for people over 701/2 years old. Many senior citizens have no mortgage interest to pay and don’t have enough deductions to itemize. So typically, they would receive no tax benefit from their charitable contributions.

However, those over 701/2 years old can direct part or all of their required minimum IRA distribution (up to $100,000) directly to a charity tax-free. Even though they aren’t itemizing their deductions, they’ll reap the tax benefit of not reporting the donated distribution as income.

Coming up in December, we’ll bring you a few more tips to help you make filing in 2012 a little less painful.