Ten Things You Can Do Now To Save Taxes in 2009

Whew!! The 2008 tax season is finally over and we can relax. Well not exactly; this is a great time to prepare for 2009 taxes. A little effort now can help you save in 2009 and will make the process a whole lot smoother. Below are some ideas to help save taxes in 2009.

1. Create a folder for your 2009 tax documents and receipts. Create a file right now, and keep it somewhere convenient, to keep track of all those expenses and donations as they occur.

2. Start going through your old clothes and junk in the garage and donate it to a charity of your choice, if you itemize this can provide a sizable deduction. Remember, keep a log of everything you donate and get a receipt!

3. If you anticipate a substantial change in your 2009 income or if you owed a lot in 2008, now is the time to adjust your withholdings or your estimated payments. There is nothing worse than owing an unexpected $5000 at the end of the year.

4. Maximize your contribution to tax deferred retirement plans. Limits on the 401k, Simple and SEP have all increased this year. If you turned 50 this year you can now make catch-up contributions to your retirement plans including your IRA (assuming you are otherwise qualified).

5. Do you anticipate a decrease in income this year? You may be eligible to contribute to a Roth IRA or for a conversion from a Roth IRA to a traditional IRA. The recent drop in the stock market has made conversion to a Roth IRA very appealing. You can pay income taxes on your account now, while the balance is low. Then during retirement, when the market has recovered, you can take tax free withdrawals. In 2009 your AGI must be less than $100,000 to be eligible for a conversion.

6. Will you be paying college expenses sometime soon? If you live in Colorado you can invest the money you will be spending on college expenses in a 529 plan and deduct the contribution from your state income tax. If you have a couple kids in college this can be significant. Don’t worry; you can invest the money in something very safe within the 529 if you are worried about market volatility.

7. If you are a first time homeowner you may be eligible for a 10% credit up to $8000 if you buy a home by December 1, 2009. This is really more like an interest free loan because it must be paid back over 15 years. Additionally, it is subject to income limits. The credit begins to phase-out for joint filers with modified adjusted gross income of $150,000 or more.

8. Are you thinking about buying a new car? You may be able to deduct the sales and local tax if you buy the car this year. This is subject to an income phase out if your adjusted gross income exceeds $125,000. I know they take all the good stuff away from middle class wage earners.

9. If you own a business or work as a consultant, be sure to keep accurate and complete records. Don’t forget to track your mileage, the current deduction for business mileage is $.55 per mile. This is frequently overlooked or understated due to poor record keeping. Additionally, if you work in your home and have a dedicated work area you may want to claim a home office deduction.

10. Take advantage of the drop in the stock market to do some tax harvesting. Tax harvesting is taking advantage of a market decline to sell some of the dogs in your investment portfolio while taking a capital loss or reduced capital gain. Prior to the market drop, the sale of a particular security may have been prohibitive due to capital gains. Now you can take advantage of the drop in the market to clean up your portfolio or do some re-balancing of your asset allocation.

About the author

Jane M. Young, CFP®, EA, MBA, CDFA

Jane M. Young is a Certified Financial Planner and co-owner of Pinnacle Financial Concepts, Inc. and Divorce Solutions, Inc. She has been a financial planner since 1996. She is also enrolled to practice before the Internal Revenue Service. Prior to becoming a financial planner Jane held several management positions at Digital Equipment Corporation and Quantum Corporation, where she worked for 14 years. Jane holds a Bachelor of Science degree in Business Administration from the University of Colorado and an MBA from the University of Colorado. She has also completed the two year Certified Financial Planner Professional Education Program with the College for Financial Planning.

Jane is very active in the community. She is the immediate past president of the Rotary Club of Colorado Springs and a past president of Leadership Pikes Peak. She is a graduate of the Leadership Pikes Peak class of 2004. She is a past president of the Financial Planning Association of Southern Colorado and a past president of the Pikes Peak Chapter of the National Association of Women Business Owners. Jane is also a member of the University of Colorado at Colorado Springs, College of Business, Alumni Leadership Team. Jane is a graduate of the Leadership Program of the Rockies class of 2009 and a graduate the Colorado Springs Leadership Institute class of 2011. She is also a member of the Estate Planning Council and Artemis. Jane was selected as a 2010 Woman of Influence by the Colorado Spring Business Journal.

As a fee-only financial planner Jane is a member of the National Association of Personal Financial Advisors, the Financial Planning Association, the National Association of Tax Professionals and the Alliance of Cambridge Advisors. She has been quoted in several local and national publications including The Wall Street Journal, US News and World Report, Consumer Reports, Investment News, MSN Money, Kiplinger Magazine, Financial Advisor Magazine, Bankrate.com and the Colorado Springs Business Journal. She also works as a volunteer instructor to new advisors with the Alliance of Cambridge Advisors and has worked as an adjunct instructor at the University of Colorado at Colorado Springs.

Jane is from St. Louis, but grew up in Colorado Springs. She enjoys skiing, golfing, traveling, hiking, painting and learning to speak French.

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