As we organize our paperwork and forms in preparation for tax season here are a few ideas to help maximize your return for this year as well as next.
Maximize your return for 2011
1. Contribute to an IRA or 529
Contribute to an IRA – you still have until the due date for filing your return 4-17-12. You can deduct up to $5,000 if you are under 50 or $6,000 if you are 50 or older. The amount is deductible for incomes up to $66K for single filers and up to $109K for those married filing jointly.
Contributions to the Future Scholar 529 plan of South Carolina will provide a 7% state tax break. This is like a 7% immediate return on your money! For more information go to www.futurescholar.com. Consider the Direct Plan in order to save more money (There is a load on broker sold shares.)
2. Maximize Your Credits- They reduce your tax obligation more than deductions. If you made energy improvements, contributed to your savings or paid for college education in 2011, you can take advantage of these credits.
The Saver’s Credit can be claimed by singles with incomes up to $28,250 in 2011 and married couples filing jointly with incomes up to $56,500. Use Form 8880.
The Residential Energy Credit can be claimed for certain home improvements. Limits are low but a credit reduces taxes dollar-for-dollar.
The American Opportunity Credit- covers 100% of first $2K and 25% of the next $2K qualified tuition paid. Note that this credit is phased out for incomes greater than $90/190K (single/joint).
3. Don’t forget your non-cash charitable contributions – This is especially great for someone who has recently moved or cleaned house (or had a death in the family or become empty-nesters). Caveat: Items need to be in good condition and have receipt and itemization at reasonable amount. Don’t forget to include your charitable mileage also.
Tax Plan now for 2012:
1. Use Your Carryover Items:
Know what carryover items you have and find a way to use them if practical (capital losses, suspended passive losses, charitable contributions, etc.).
2. Sell now to avoid higher tax rates:
Consider accelerating income/selling some investments – In 2013, if Congress does nothing, tax rates are poised to go up for everyone and qualified dividends, which are now taxed at 15%, will be taxed at ordinary income rates; federal capital gain tax rate will increase from 15% to 20%. Selling passive activity such as rental property also frees up suspended passive losses. Be mindful of fact that a large capital gain drives up AGI which causes some deductions and credits to phase out.
3. If you are taking Required Minimum Distributions(RMDs), consider a charitable IRA rollover:
The rollover counts toward your RMD, but is not taxed as a regular distribution. You don’t get the charitable tax break but it is a better deal than taking the distribution and then deducting the charitable expense. Note that this must be a church or “qualified” charity.
