Year End Tax Planning Moves For 2009 (Part 1)

It is that time of the year again and here is our annual reminder for some last-minute tax planning tips that may save you money come April 15, 2010:

- Make charitable contributions by December 31, 2009, to obtain the tax deduction for 2009. Remember that you must back up all cash contributions (including those by check and credit cards) with a receipt or bank record showing the name of the charity, the date of the contribution and the amount. For credit card donations, these are valid as long as they are charged to the card before 12/31/09 (i.e. you can pay them in 2010 and get a 2009 deduction).

- Buy an automobile. There are special tax deductions for automobiles if they are bought and placed into service on or before December 31, 2009. For business owners, there is a maximum first-year deduction of $10,960 in 2009 (this will go down to $2,960 in 2010). Individuals may also be able to deduct the sales taxes on the vehicle as well (up to a purchase price of $49,500– there are income phase outs as usual on this tax deduction).

- Offset capital gains and losses. You are permitted to sell stocks that are money losers for you to offset other capital gains you may have for the year. If you have a capital loss carry forward (available if you sold stocks at a loss in previous years but could not use all of the losses due to the $3,000 annual deduction limit), you can sell stocks at a gain and perhaps pay no taxes if you have sufficient losses to use up.

- Utilize residential energy tax credits. If you buy certain energy-saving windows, insulation, doors, etc. and put them into use before December 31, 2009, you may save up to an aggregate of $1,500 in taxes via this energy credit.

- Pay discretionary business expenses by December 31, 2009, to get the tax deductions in 2009. The same applies to delaying the reporting of income for cash-basis taxpayers (by delaying the collection of $ from customers until 2010, you also delay the reporting and payment of taxes until 2010).

- Convert your Regular IRA to a Roth IRA (if you later determine that this was a mistake, you have until October 15, 2010, to recharacterize the conversion and change it back).