Last Minute Ways to Reduce Your Tax Bill

Along with tidings of comfort and joy, the holidays bring a rush of opportunities to cut your 2010 taxes. Hint: Keep those receipts when you give to charities.

The holidays are approaching fast. And my gift to readers is a gentle reminder to make those last-minute tax moves.

Education tax credits for 2010

Still, there are moves you can and should make before Dec. 31 to trim your 2010 tax bill.

Let's start with the simple things.The easy stuff The IRS allows purchases made up through March 15, 2011, to count. Your employer can give you a debit card for your FSA spending. That eliminates a whole lot of paperwork. You can even pay for nonprescription drugs through an FSA. But Congress changed the rules again, and 2010 is the last year nonprescription drugs will qualify.

Be careful, though. Unless your employer's plan also is amended to allow the March 15 extension, you won't qualify.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=15c8312f-70cb-483e-9bd4-905fa29e37e1,1ca5b6a2-3afe-4189-9491-2f453df3e639,aa631afa-7e63-4bb0-900f-edde624b859a,45b5014a-4003-40d1-abf5-57e3afb486ba,babdb04d-d759-46e9-a8c8-b383c9595172,be6450a5-250e-40eb-a1fc-a306ced3292d,e46ce547-3f2c-41b4-8f72-617530ebab48,fc857eae-c31f-40a9-b73e-7c0d7ce00f37,c4626dc5-d3d0-4c9f-8538-ea9374cfe961,0beda222-754d-48f0-a013-0ae82dc4e76c,52d354d1-bda0-41f7-9a28-bea59770aef1", "player.fr": "iv2_en-us_money_article_16x9-tax-advies-year-end-moves-to-trim-your-tax-bill"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=15c8312f-70cb-483e-9bd4-905fa29e37e1,1ca5b6a2-3afe-4189-9491-2f453df3e639,aa631afa-7e63-4bb0-900f-edde624b859a,45b5014a-4003-40d1-abf5-57e3afb486ba,babdb04d-d759-46e9-a8c8-b383c9595172,be6450a5-250e-40eb-a1fc-a306ced3292d,e46ce547-3f2c-41b4-8f72-617530ebab48,fc857eae-c31f-40a9-b73e-7c0d7ce00f37,c4626dc5-d3d0-4c9f-8538-ea9374cfe961,0beda222-754d-48f0-a013-0ae82dc4e76c,52d354d1-bda0-41f7-9a28-bea59770aef1;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');Mortgage interest. Make your Jan. 1, 2011, mortgage payment by Dec. 31, 2010. Remember to add the extra interest paid to what your bank reports on its Form 1098 -- it'll get your payment in 2011 and won't report it for 2010. But you paid it in 2010, so it adds to your deduction this year. (The downside is that you won't be able to deduct the payment from your 2011 return. But, offset that with a payment of your January 2012 mortgage in December 2011.)

Real-estate taxes. If you pay your own real-estate taxes, make any payments due in the beginning of 2011 by Dec. 31, 2010. My fourth-quarter real-estate tax is due Feb. 1, 2011. By paying before the end of 2010, I can get the deduction a year earlier. (Again, you can't deduct payments made in 2010 from your 2011 return.)

One note: Taxes aren't allowed as a deduction under the alternative-minimum-tax computation. If you think you will be hit by the AMT, don't prepay.

Homebuyer credits. If you didn't own a principal residence during the past three years prior to buying a home, you qualify as a first-time homebuyer. You must have had a binding contract by April 30, 2010, and closed by September 30, 2010, to qualify. If you meet those criteria, you get a refundable credit of 10% of the purchase price, up to $8,000.

You may also qualify if you've owned a principal residence for at least five years and bought a new one within the time limits above. The house doesn't have to be new. But it has to be a new principal residence. If the house cost more than $800,000, or if you weren't yet age 18, you don't qualify. This credit is limited to $6,500.

The homebuyer credits phase out for single taxpayers with modified adjusted gross incomes of $125,000 to $145,000 and for joint filers with incomes of $225,000 to $245,000.

If you don't want to wait until April 2011 to cash out on one of these credits, you can claim it on an amended 2009 return, even if the purchase was in 2010.

Continued: Medical and miscellaneous deductionsMore from MSN Money

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More . . .Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8'); 37CommentsNewestOldestBestWorstControversial12  Someone  (Lee_MA) 4 hours agoWOW! a rerun on an article from 2009. Now that's a new low.     0    0ReportSpamShockerdanMon 8:31 AM

You fail to mention the fact that claiming a “13th month” of mortgage interest locks a person in to paying January’s payment early for the rest of the life of the mortgage, just to get 12 months worth of deductions in future years. This is a one time benefit that you have to remember to make up for every year after. Same goes for the idea of paying taxes early.  Doesn't seem worth it.

    0    0ReportSpamDom Einhorn3/30/2010 11:53 AMOr you can report tax cheats and earn up to 30% of what the IRS ultimately collects from those cheats committing IRS fraud.     1    0ReportSpamDaves Dollars12/29/2009 10:29 AMBuy a car?  That only applies to new cars correct, not used cars?     0    0ReportSpamgsozzzz12/29/2009 9:58 AMYes you get up to a $1,000,000 mortgage amount plus an additional $100,000 in home equity. So essentially, you can have $1,100,000 in mortgage debt to deduct your mortgage interest.     0    0ReportSpamFORD193212/29/2009 9:45 AMI do not see any answers to these questions? Does anyone really answer them?     0    0ReportSpamferry- kerry12/29/2009 9:35 AMNO     0    0ReportSpamcc5012/29/2009 9:28 AMI would think that ownership is required for deduction of real estate taxes as well as mortage interest.     0    0ReportSpamtimmy5612/29/2009 8:58 AMIs the maximum amount of a mortgage still $1,000,000. to deduct interest??     0    0ReportSpamAmateurrr12/29/2009 3:17 AM"Capital gains and losses. If you're single with taxable income of $32,550 or less, you get the 0% rate."  For 2009, should it be $33950?  $32550 seeems to be the 2008 number!     0    0ReportSpamJuswondering0912/29/2009 1:05 AMIf I just set up an repayment agreement with my mortgage company for my past due balance (I was in foreclosure), can I still claim or get a deduction on the payments that were made in 2009...my past due payments go back to 2008.     0    0ReportSpamAtaraxian12/28/2009 11:34 PM

You just give ObamaCo all your money to waste as they please !!!

    0    1ReportSpamreneeunity12/28/2009 11:23 PM

As for claiming taxes on a car does it have to be a new car?

    0    0ReportSpambeconcerned12/28/2009 9:29 PMwhat if we bought a house in 2003 (lived in it from 2003-2007), moved to another state in 2007 and bought another house(lived in it from 2007-2008). never sold either houses. moved to another state in 2008 and are renting. would we qualify for the $6,500 tax credit? We started renting the 1st house in 2007 and started renting the 2nd house in 2009.     0    0ReportSpamfk927812/28/2009 8:55 PM

Has there been any discussion by the gov to relieve the 10% penalty for a 401k loan that wasn't repaid do to being unemployed by a company closing?

    0    0ReportSpamKspangler12/28/2009 8:54 PM

For a person looking to purchase a home that has owned a previous home in the last 5 to 8 years, they have to have been in a binding contract for sale of the home dated November 1, 2009 and  up until April 30, 2010.

    0    0ReportSpamMarlin 612/28/2009 8:46 PMI have read some where that there is a $1000.00 tax deduction for real estate taxes if you do not itemize. Is that true or not?     0    0ReportSpamjohn67912/28/2009 8:01 PMIf I was married for the past 8 years and was not ever on her mortgage or deed and I bought a home in late 2009 will I qualify for the $8000 tax credit?     0    0ReportSpamGranmuddy12/28/2009 7:46 PMI hit the wrong key in the above post. I owned the prior house for 10 years. I had built the house in 1999. Also, I failed to add that I am currently 67 years old.     0    0ReportSpamGranmuddy12/28/2009 7:44 PM

I owned a house for 19 years which I sold in February of 2009. I bought another house in another town in February of 2009. Do I qualify for the tax credit? If not, why not.

Thanks!

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Real-estate taxes. If you pay your own real-estate taxes, make any payments due in the beginning of 2011 by Dec. 31, 2010. My fourth-quarter real-estate tax is due Feb. 1, 2011. By paying before the end of 2010, I can get the deduction a year earlier. (Again, you can't deduct payments made in 2010 from your 2011 return.)

One note: Taxes aren't allowed as a deduction under the alternative-minimum-tax computation. If you think you will be hit by the AMT, don't prepay.

Homebuyer credits. If you didn't own a principal residence during the past three years prior to buying a home, you qualify as a first-time homebuyer. You must have had a binding contract by April 30, 2010, and closed by September 30, 2010, to qualify. If you meet those criteria, you get a refundable credit of 10% of the purchase price, up to $8,000.

You may also qualify if you've owned a principal residence for at least five years and bought a new one within the time limits above. The house doesn't have to be new. But it has to be a new principal residence. If the house cost more than $800,000, or if you weren't yet age 18, you don't qualify. This credit is limited to $6,500.

The homebuyer credits phase out for single taxpayers with modified adjusted gross incomes of $125,000 to $145,000 and for joint filers with incomes of $225,000 to $245,000.

If you don't want to wait until April 2011 to cash out on one of these credits, you can claim it on an amended 2009 return, even if the purchase was in 2010.

Continued: Medical and miscellaneous deductionsMore from MSN Money

 1 | 2 | next >

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You fail to mention the fact that claiming a “13th month” of mortgage interest locks a person in to paying January’s payment early for the rest of the life of the mortgage, just to get 12 months worth of deductions in future years. This is a one time benefit that you have to remember to make up for every year after. Same goes for the idea of paying taxes early.  Doesn't seem worth it.

You just give ObamaCo all your money to waste as they please !!!

As for claiming taxes on a car does it have to be a new car?

Has there been any discussion by the gov to relieve the 10% penalty for a 401k loan that wasn't repaid do to being unemployed by a company closing?

For a person looking to purchase a home that has owned a previous home in the last 5 to 8 years, they have to have been in a binding contract for sale of the home dated November 1, 2009 and  up until April 30, 2010.

I owned a house for 19 years which I sold in February of 2009. I bought another house in another town in February of 2009. Do I qualify for the tax credit? If not, why not.

Thanks!

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