While many people are focused on the upcoming holiday season, our Money Coach Bill Stanley is thinking about taxes. Boring, he admits, but very important.
He says December is an important month for taxes. December 31st is the deadline for many tax related actions you can take:
- Opening an IRA, a Roth IRA, or a Solo 401(k). Although you can contribute for tax year 2009 until April 15, 2010, you must open the account by December 31. Stanley especially likes the Roth IRA -- there's no tax deduction, but the amount invested and the growth of that investment will not be taxed again, forever.
- Converting your IRA into a Roth must be done by year-end. Stanley says this could be a good move depending on your tax bracket, but you must pay taxes on the amount converted.
- Capital gains or capital losses must be taken by year-end. If your taxable income in 2009 is less than $32,550 (single)/$65,100 (married), your capital gains rate is zero as long as the capital gains themselves do not take you above these limits. Stanley advises that you sell investments with a profit and then buy them back. (State tax applies, however.) You can raise the basis of your investment without paying federal taxes and (assuming additional gain) pay taxes on a lesser amount in the future. Capital losses offset capital gains; $3000 in additional losses can offset regular income.
- Charitable contributions and other deductions must be done by the end of the year. If you can pay a deductible item in advance, do it in December.
Some other things to think about:
1) At the end of December, look at your income, expenses and deductions for 2009 and compare them to your estimates. If you pay estimated taxes, make adjustments for the last payment due January 15.
2) The best person to prepare your taxes is YOU. Think about how to best organize your financial records so tax time is less of a chore.
Taxes are an important part of our financial life; we should think about them all year.
Bill Stanley and Money Matters airs every Tuesday on FOX21 Morning News.
If you have a question for Bill, contact him directly at moneycoachbill@aol.com
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