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.
Think there’s nothing good about paying higher prices at the grocery store and at the pump? Well, as it turns out higher inflation can lead to lower taxes…
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If you been in a mall or big box store lately, you’re already being reminded that the holiday season is just around the corner. But now is also the time you should start making plans for the end of year tax moves…
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Selling your home and moving can be expensive, but many of the costs may be deductible. The IRS offers 10 tax tips on deducting some of those selling expenses or profits.
- In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
- If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
- You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
- If you can exclude all of the gain, you do not need to report the sale on your tax return.
- If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
- You cannot deduct a loss from the sale of your main home.
- Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
- If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
- If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
- When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.
For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
When you decide to sell your home, you need to know what the cost basis of the home is, because it needs to be noted on your income tax return for the year you sell your home.
When you are considering selling your home, taxes are probably not the first thing on your mind. Taxes are involved in some way, whether you gain or lose money from a real estate transaction. Enter the term ‘cost basis.’
In the United States, cost basis is a tax law term. The original price you paid for your home is what the basis is considered. Factors such as a home’s appreciation or depreciation is where the cost portion of the calculation is taken into account and also adjusted for.
You, as a taxpayer, will end up paying taxes on a capital gain when you sell your property and your home has appreciated in value. Subtracting the money paid for the property’s original value or basis, this is equal to the amount of money you gained on the sale. You, as a taxpayer, will end up saving on taxes from any loss you may have suffered if, when you sell your property, your home has depreciated in value. With the property’s original basis factored in, this is again equal to the amount of money you lost on the sale.
It does not matter if the property is encumbered by a debt in this equation. The home’s original cost, plus or minus any profit or loss realized at its sale, is all that matters. Any costs associated with the selling of your home can also be subtracted. The calculation has the possibility of being a little confusing, even if the figures seem relatively straightforward, especially if you don’t have the strongest math skills. Contacting a tax specialist is the best way to ensure you understand your tax obligations.
You may qualify for a one time exemption on any gains when you sell your home, so again, consult with a CPA or tax professional for details on how your particular tax situation needs to be handled when you sell your home.