Year-end Tax Planning

There's still time to lower your 2010 tax bill, contribute to your tax-advantaged retirement accounts, and do some tax planning for next year.

Following, are a few ideas to get you started prior to year-end.

Contribute to Your IRA. You can contribute up to $5,000 ($6,000 if you are age 50 or older by year-end) to your IRA in 2010 if certain conditions are met. For married couples, the combined contribution limits are $10,000 ($5,000 each) and $12,000 ($6,000 each if both are age 50 by year-end) when a joint return is filed, provided one or both spouses had at least that much earned income. These limits apply to the cumulative contributions to traditional and Roth IRAs. In addition, contributions to traditional IRAs may be tax deductible, subject to specific conditions and limitations.

Contribute to Your Employer-Sponsored Retirement Plan. The 2010 annual deferral limit for qualified retirement plans is $16,500. If you are at least age 50 by year-end, you can contribute an additional $5,500 to 401(k), 403(b), and 457 plans. These contributions normally decrease your taxable income and the income taxes thereon.

Capital Gains. It may be a good time to consider selling capital assets (e.g., common stock) with a low cost basis. The maximum capital gains tax rate in 2010 is 15% for gains from the sale of qualifying assets held more than one year. In fact, taxpayers in the 10% and 15% ordinary tax brackets can do even better by taking advantage of the 0% capital gains rate in 2010. In addition, qualifying dividends received during 2010 generally will be taxed at the 0% or 15% capital gains rates.

Energy Credit. If you have not taken advantage of the Nonbusiness Energy Property Credit available in 2009 and 2010, it is a great way to cut energy costs and save up to $1,500 (for both years combined) in income taxes by making energy efficiency improvements to your principal residence. Basically, if you install energy-efficient insulation, windows, doors, roofs, heat pumps, hot water heaters or boilers, or advanced main air circulating fans to your home before year-end, you may be entitled to a tax credit of 30% of the purchase price, up to a maximum credit of $1,500.

Please contact us for additional tax-saving ideas or guidance on tax-related questions.