Get organized!

Setting up a filing system with all your tax information, from receipts to statements to last year’s tax return – is the best way to avoid scrambling at the last minute. If you’re not organized you might miss out on significant tax breaks, make math mistakes, or improperly estimate what you owe (and thus get hit with penalties and fees).

Last Minute Tax Tips

Don’t overlook valuable credits…

According to the IRS, an astounding 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it. This credit, designed for lower income working families and individuals, is worth up to nearly $6,000 for those who qualify. Other credits that are often missed include the Child and Dependent Care Credit, which is worth between 20%-35% of what you pay for child care while you work, and the American Opportunity Credit, which is worth up to $2,500 of your college tuition, course materials, supplies and related expenses paid during the taxable year.

 …or deductions

People tend to remember cash donations they made to their favorite charities, but they frequently overlook out of pocket charitable contributions. Granted you can’t deduct your time, but if you drove your car for charity in 2011, you can deduct 14 cents per mile plus any parking and toll fees faced during your philanthropic journeys. Other deductions often overlooked include things such as student loan interest, property taxes, moving expenses, and job hunting expenses, which, by the way, are deductible even if the hunt was not successful.

Just don’t go overboard!

This is where many self-employed individuals (which are a lot of us these days) tend to run into trouble, whether it’s merging their business and personal expenses, claiming large deductions for business travel and entertainment, or taking massive write-offs. Don’t get carried away – especially if you can’t back it up with proper documentation! – or the IRS will take notice, which may increase the odds of an audit. Remember: the key is to look like other taxpayers in your income bracket.

Contribute to your IRA

The maximum contribution is $5,000 for the 2011 tax year; $6,000 if you’re 50 or older. You have until April 17^th to make these contributions. Part – or all of it – may be deductible.

Lastly..

Don’t wait any longer!  If you aren’t going to make the tax deadline you’ll need to file an extension by April 17, you can do it online for free.  And remember, an extension to file isn’t an extension to pay, so if you owe money, that payment still needs to be sent to the IRS by April 17.

If you are just one of the 28% of taxpayers out there that wait until the last minute to file, no more excuses.  Go online and file today!  With TurboTax you could even be done in under an hour.

Finance

Here are a few tips to help you get started:

Reduce Your Credit Card Debt

Did you know that 14 million Americans are still paying off their holiday bills from 2010? Or that the average household currently has about $15,000 in credit card debt? As you rethink needs versus wants in 2012, regain control by paying down the balance of the credit card with the highest interest rate first.  There are free sites out there like Mint.com that will help you establish a budget and goals.  Alternately, look into doing a balance transfer which will help you consolidate high-interest rates to less expensive cards.

Save More & Spend Less

Get this: About 60% of overall purchases are spontaneous, and the average cost of an impulse buy is about $100. Stop the madness!  You can put more cash in your pocket in 2012 by separating your wants from your needs.  Need cash immediately or want to kick start your savings? File your taxes now! Tax refunds are averaging about $3,000 and if you choose e-file and direct deposit you may get that money back in your pocket in as few as 7 days versus 4 – 6 weeks for a paper return. You can also save on fees and learn about your fiscal health by using TurboTax.

Boost Your Credit Score                  

These days, you need a score of about 720 or higher to get the best rates. Score high and you can save thousands of dollars; score low, and it’s not only tough to get a loan, but also rent an apartment or even land a job. Make 2012 the year you improve your credit score. You can do this by paying your bills on time (that accounts for 35% of your score), paying down your debts (the amount you owe is 30% of your score), and keeping the credit card spending under control. You should utilize no more than 30% of your available credit and ideally only 10%.

Fund An Emergency Account

Fewer than four in ten Americans have a fully funded rainy day account! That’s a scary prospect, given how fragile this recovery is. You need a cushion: if possible, at least six months to a year’s worth of salary set aside in an accessible account (such as a money market account) to cover unexpected expenses or replace interrupted income.

Get Serious About Retirement

First, run the numbers to see just how much money you’re going to need to live comfortably in your retirement. Then, get to work. Stash away as much as you can into an employer-sponsored plan (the contribution limits have gone up from $16,500 in 2011 to $17,000 in 2012; $22,500 for those 50 years of age or older), and take full advantage of company matches.  You should also consider spending less, working longer and redefining your vision of retirement.

Boost your retirement accounts

While you have until April 17^th to make contributions to your IRA, you only have until the end of the year to boost contributions to your employer-sponsored plan, such as your 401(k) or 403(b) plans. The benefits are twofold: pre-tax contributions to these accounts not only reduce your overall tax bill, but also build up your savings. With just a few more pay periods to go, try to max out – ideally, stashing away a total of $16,500, or $22,000 if you are 50 or older.

Review Investments

It’s been a wild ride on Wall Street this year, so carefully review your portfolio statements to assess your investments’ overall performance. After all, recognizing capital gains and losses before ringing in the New Year, helps minimize your net capital gains tax and maximizes deductible capital losses. Any investments you want to sell? Consider doing it before the end of the year. You can deduct up to $3,000 of losses against ordinary income.

Improve your home

If you haven’t already maxed out your home energy tax credits in previous years, make 2011 the year to do it since the Residential Energy Tax Credit expires at the end of the year!  The tax credit is worth 10% of the cost up to $500 for insulation, roofs, skylights, and doors, up to $200 for new windows, and up to $300 for heating and air conditioning systems. Upgrades must be installed by Dec. 31^st in order to claim the tax credit. For more specifics, including various restrictions and other details, go to http://www.energystar.gov.

Defer income (until 2012); accelerate deductions (into 2011)

Are you owed any self-employment income? A bonus, perhaps?  It may be worth checking whether payments can be delayed until the start of next year.

This strategy not only minimizes taxable income for 2011 (something to think about, particularly if you anticipate being in a lower tax bracket in 2012), but it may also enable you to claim larger tax deductions, credits, and other tax breaks for 2011 that are phased out over various levels of AGI. Specifically, things like child tax credits, higher education tax credits, and the above-the-line deduction for higher education expenses and the tax deduction for student loan interest meet these requirements.

Pay Bills Early

Prepaying some of your bills can also save you money. For example, if you pay your January mortgage in December, you can deduct the January interest payment this year. This gives you 13 months’ worth of tax deductible interest in 2011, thus boosting this year’s total tax savings.

Give the gift of cash

We currently have very generous estate and gift tax exclusions.  The gift tax exclusion allows you to give gifts valued up to $13,000 per person per year($26,000 per husband-wife team) to any number of recipients without being taxable.  Estate tax applies to the taxable estate at death.  An estate tax return may need to be filed, however if the gross estate less allowable deductions is less than $5 million, the decedent is not required to file an estate tax return.  While the $5 million lifetime exclusion (which expires at the end of 2012) may only be relevant for the wealthiest Americans, the annual $13,000 gift exclusion disappears forever if you fail to use it by the end of each year. In most cases, the gift isn’t complete until the recipient of a check cashes or deposits it.

Be charitable

Donations to qualified charities, whether made via cash, check, or other monetary gift, need to be substantiated with the proper documentation, as do miscellaneous clothing and household gifts. Donations can add up to hundreds of dollars in tax deductions; to determine your item’s fair market value, use the free online tool “ItsDeductible.” Also, just a reminder: you have to itemize your tax deductions in order to get the break.

A weak economy has many people feeling more cautious than ever.  As a result, 7 out of 10 of us (68%) will be “giving” more sparingly to our favorite causes, according to a study by Campbell Rinker.  Another 1 in 10 Americans plan to stop giving altogether until the economy gets back on track.

The good news is there are plenty of ways to be charitable without actually dipping into your pocketbook.  All you have to do is shop more thoughtfully, and “doing good” can easily be a part of your everyday life.

Here are some options:

Shop Your Closet

Have a couch that no longer matches your living room decor?  Gently worn clothing that is cluttering up your closet?  A television set that you’re not using?  As long as your “stuff” is in good or better condition, charities will be pleased to take it, and you’ll be rewarded with a nice little tax deduction come tax time.  To determine your item’s fair market value, use ItsDeductible, a free online site from TurboTax.  It’s free, easy to use and it imports directly into your TurboTax return.

Shop Online

A site called GoodShop.com makes giving a cinch.  Anywhere from 3% (on average) to as much as 30% of each purchase you make on this shopping portal – which is affiliated with over 2500 name brand retailers from Amazon, Toys ‘R Us, Target, to GAP, and Petco – is donated to your favorite charity.  Simple as that.

Change Your Search Engine

Every time you do a search on GoodSearch.com, a Yahoo-powered search engine (that you use as you would any other search engine), one penny is donated to your favorite cause.  And those pennies add up:  the ASPCA, to name one, has already earned over $34,000 from searches by its supporters.

Shop Smart

Put your funds to work when you shop by buying from one of the many companies that donate part of their proceeds to a noteworthy cause.  Lots of them do – from Estee Lauder, Kiehls, The Body Shop, Tom’s Shoes, Dancing Deer Baking Company to Newman’s Own.

Buy and Sell on eBay

Support your favorite causes through the eBay Giving Works program.  Sellers:  Choose the charity and the percentage of the sale you’d like to donate when you list an item.  The listing will automatically be indexed for buyers wanting to give to the charity that you have selected.  Buyers can also search for items by charity in order to ensure that their bids support their favorite causes.

Apply Credit Card Points

See if you can convert your credit card points into a charitable donation.  The Members Give program at American Express (amex.justgive.org), for example, allows its customers with points-based rewards cards to redeem these points as a donation to any of the charities listed on GuideStar.org (there are over a million to choose from).  Charities get $10 for every 1,000 points you redeem.

Game for Good

Give to a good cause by playing social games that drive donations to various charities.  TurboTax has a Facebook game, “Gaming for Good“, which is designed to generate holiday toy donations for Toys for Tots.  Successfully complete all three levels of the game and TurboTax will donate one toy to a child in-need.

Think: bite-sized chunks

To alleviate the anxiety and stress of filing your taxes, get started TODAY! Start by organizing your paperwork, establishing a filing system, reviewing all your documents, and then e-file! It’s really as simple as that.

Skip the tax store

Let’s face it – it’s getting a little late in the season to hire a pro or make an appointment at a tax store.  And the thing is, especially if your taxes are simple (ie: you claim the standard deduction, as 60% of filers do), you don’t need to pay someone to file your taxes! Last year, taxpayers with a 1040 A/EZ spent some $2.5 billion in preparer fees—a total waste of money! Save yourself several hundred dollars, and file on time with the help of a software program – likeTurboTax. After all, it’s what many pros use behind closed doors—at your expense.

Take advantage of all the breaks you’re entitled to

One of the more valuable tax credits just so happens to be one of the many credits that Americans forget to claim: the Earned Income Credit.  For tax year 2010, the maximum credit for a household with three or more children is a whopping $5,666.  Claim it if you’re eligible; after all, a credit reduces your taxes dollar for dollar.

Make contributions to your IRA

One of the best ways to save for retirement and reduce your tax liability is with an IRA.  The maximum contribution limits for 2010 is $5000 for those under the age 50; $6000 for those age 50 and over.  In most cases, you have until April 18^th to make these contributions (even if you’re planning on filing for an extension).

Unemployment benefits are taxable

In 2009, an exemption was given for the first $2,400 of unemployment benefits received. That break has expired for tax year 2010 so you’re going to need to budget accordingly (Form 1099-G will tell you how much unemployment you must report.). Also keep in mind that severance pay and accumulated sick leave or sick time are taxable as well.

Tapping retirement accounts early is costly

One of the first things people do when they’re out of work and need money is tap their retirement accounts. Raid the IRA, and with very few exceptions, you’ll be subject to a 10% early withdrawal penalty (if you are under the age of 59 1/2); 401(k) plans are subject to similar rules.

Job hunting expenses are tax deductible

Assuming you looked for a position in the same line of work in 2010, you can deduct all sorts of job-hunting costs — travel and transportation expenses to/from interviews, business cards, career counseling, the costs of preparing and copying your resume, and more. Granted, there are some caveats -expenses incurred by those seeking first-time employment are not deductible (sorry, recent grads!), you have to itemize, and all miscellaneous deductions must exceed 2% of your adjusted gross income – but you get this break even if the job search was unsuccessful.

Take credit(s!) where credit is due

Did you go back to school in 2010? Were you out of work much of the year? There are a number of tax credits that may apply to your situation. Among them: the American Opportunity credit (up to $2,500) for those who were working toward a degree in 2010; the Lifetime Learning credit (up to $2,000) for those who took classes last year to acquire or improve job skills; the Earned Income Tax Credit for low-to-moderate wage earners; and the lesser known Saver’s tax credit (up to $1,000). If you earned $27,750 or less ($55,500 for married filing jointly) and deposited money into an IRA 401(k) plan or other retirement program during the year, you may qualify for it.

Earned income tax credit (EITC)

The IRS estimates that nearly 6 million taxpayers who are eligible for the Earned Income Tax Credit (EITC) fail to claim it.  That’s one in five! And the reason we’re not claiming this credit — a credit designed to supplement wages for low-to-moderate income workers (which is a lot of people these days, including many individuals and families who were previously classified as “middle class”) – is generally due to one of two reasons: a) the rules pertaining to this credit are confusing, and b) taxpayers are not aware that they qualify! What’s it worth? The maximum credit for 2010 is $5,666 for those with three or more dependent children; smaller credit amounts are available for those with fewer – or no – qualifying children. While the exact refund you receive depends on your income, marital status, and family size, consider this: qualifying taxpayers who claimed the EITC last year got an extra $2,200 on average.

Job-hunting costs

With 15 million Americans out of work, you might very well be one of them. But if you looked for a position in the same line of work in 2010, and if you itemize your return (!), you can deduct job-hunting costs — from cab fares to food, travel and transportation expenses to/from interviews, to business cards, career counseling, the costs of preparing and copying your resume and more — as miscellaneous expenses.  A few caveats: expenses incurred by those seeking first-time employment are not deductible (Sorry, recent grads!), and in order to get this break, the amount of all miscellaneous itemized tax deductions must exceed 2% of your adjusted gross income. That may sound like a lot, but you’d be surprised how easy it is to clear this threshold–particularly if you didn’t make much last year.  Furthermore, you get this break even if the job search was unsuccessful.

Out of pocket charitable contributions

While you surely remember any big charitable cash donations you made in 2010, you may easily forget the smaller, non-cash contributions. No, you can’t deduct your time, but you can deduct various out of pocket costs you incurred while doing good deeds–things like ingredients for pies you made for your favorite charity, materials you used to make blankets for a homeless shelter, stamps you bought for a fundraising event, and miles.  You can claim 14 cents a mile for any driving you do in service of a charity or volunteer project.

State sales tax deduction

When you have the option of claiming either state and local income taxes OR state and local sales taxes, the income tax deduction is typically a better deal. However, this write-off makes the most sense for those who in states that do not impose an income tax. How much can you deduct? Use the IRS’ tables as a guideline or prepare your taxes with software, it will do all the hard work for you!

Child-care tax credit

The child-care tax credit is easy to miss, particularly if you working parents pay your child-care bills (such as daycare or nanny services) through a tax-favored reimbursement account at work. While only $5,000 in expenses can be paid through one of these accounts, up to $6,000 (for the care of two or more children, under the age of 13) can qualify for the credit. What if you hit the cap at work and spend another $300? $500? $700? So long as these expenses are for work-related child care, up to an $1000 of additional costs can be claimed. How much it this credit worth? While that depends on your income, the number of children, and the cost of care, the credit starts at 35% of qualifying expenses if your adjusted gross income is less than $15,000 and phases out to 20% of eligible expenses if your adjusted gross income is more than $43,000.

Tax deadline: April 18th!

Did you know that you have few extra days to file your federal taxes this year? That’s right – you have until April 18th to get everything in order and filed (to avoid conflicts with Emancipation Day).  Just remember: this is both the deadline to file, and the deadline to pay. If you owe the government money, even if you file an extension, you must pay your best estimate–within 90% accuracy–of what you think you owe or you’ll be hit with interest and penalties on any balance due.

Unemployment benefits ARE taxable

There’s some confusion here, particularly since in the 2009 tax season, an exemption was given for the first $2,400 in unemployment benefits. Sorry, but that break has expired for tax year 2010. Unemployment benefits are considered taxable income and must be reported on your federal tax return.

You may be eligible for the EITC

Maybe you weren’t eligible for the Earned Income Tax Credit last year or even the previous year, but you may be eligible this year as you may have seen your income take a bit of a hit.  And you’re not alone.  Many individuals and families, previously classified as “middle class,” are now eligible for this tax break which are designed to supplement wages for low to middle-income workers. To determine whether you qualify, use the EITC Assistant, an interactive tool that’s available on IRS.gov.  All you have to do is answer a few simple questions to find out if you qualify and if you do, this credit could be worth a whopping $5666 this year.

Consider weather-related tax breaks

It’s been a brutal winter! And while homeowners insurance can protect your home and possessions during damaging weather, what you might not realize is that you may be able to deduct storm damages — providing the damage meets the definition of a casualty loss.  What’s that? A casualty loss is something that happens suddenly and unexpectedly (like a roof collapsing due to heavy snow) as opposed to something that happens gradually (such as water seepage in a basement).

Claim the Making Work Pay credit

If you were eligible for this tax credit, the government simply took less money from your paycheck (a single taxpayer was eligible for up to $400 last year; married couples, up to $800), but that’s not the official credit claim.  To account for this money, you need to do a little extra work and file Schedule M.

A new status often means new tax implications (and strategies).

Take a look:

Did you Change your Status to Single?

While breaking up with a boyfriend/girlfriend is easy relative to going through divorce, annulment, or legal separation (Just donate his/her stuff to charity and call it a day!), don’t make the situation worse by ignoring important tax considerations. Among them: property settlements, alimony (It’s fully taxable as income to the recipient and provides an “above the line” deduction for the payer); and kids. Who get the tax benefits and exemptions as it pertains to them? Generally, the custodial parent does, but check your divorce decree to see if it specifies otherwise. As for filing status, many divorced people file as Single. However, if you are divorced and at least one of your kids lives with you, you are a custodial parent and will most likely be able to file as Head of Household. That’s a good thing – HOH status generally results in a much lower tax bill. Separated?  You can file as Married Filing Separately or Married Filing Jointly, but filing jointly is typically the most beneficial status (see below).

Did you Change your Status to Married?

If you exchanged “I Do’s” anytime in 2010–even if you got married just seconds before the ball dropped on New Year’s Eve–you will be considered legally married for the full tax year. One of the first things you need to do – in addition to contacting the Social Security Administration if you changed your name – is change your filing status.  You can either file as married filing jointly or married filing separately.  In some situations, you can even file as head of household, but you cannot file as single. What’s typically the best way to go? Married filing jointly.  It provides the lowest tax liability and the highest standard deduction. Yes, there are some situations where it might be advantageous to file separately – for example, if one taxpayer has high medical expenses and very little income, or if you suspect your spouse is involved in fraudulent behavior – know that when you file separately you lose valuable credits and deductions, from education benefits to student loan interest deductions and more.

Did you change your status to Engaged?

As you prepare for this next chapter in your life, don’t let the excitement and joy of it all prevent you from having a conversation about your financial future. Before you walk down the aisle, know where your soon-to-be spouse would like to be in 5, 10 years, what assets/liabilities they have (Does he/she owe back taxes? Child support from a former marriage? Has he/she defaulted on student loans?), how you’re going to tackle any existing debt, whether you’re going to keep your finances and investments separate or combine them, how you will handle daily spending decisions, and who will be responsible for paying the bills and preparing the taxes. At this time, you’ll also need to think about changing your withholding.

Did you change your status to In a Relationship?

Not all those in a relationship cohabitate, but for those who do, there are some tax implications.  No doubt, there are more couples living together these days–7.5 million opposite-sex couples in 2010, according to the US Census Bureau. That’s 13% more than in 2009. While some heterosexual couples living together can enjoy the rights of marriage without getting hitched the traditional way by claiming common law marriage (recognized by law in over a dozen states), most unmarried couples—especially same sex couples–are up against numerous financial hurdles compared with their married peers. From who gets the homebuyer credit to who claims the kids to health insurance coverage (The IRS doesn’t recognize domestic partners–That means benefits provided for your partner are treated as taxable income) to how you should structure purchases to maximize tax advantages, there are many issues to consider.

Did you change your status to It’s Complicated?

I’ll be honest… I’m not entirely sure what “It’s Complicated” means! If you changed your status to this option in 2010, chances are your taxes are the least of your worries.

That means, now’s the time for everyone to get organized. E-file early and you not only avoid the long lines of procrastinators at the post office on April 18th (and the ensuing stress that comes with the territory), but you reap other benefits beyond peace of mind–like these:

Quick Tax Refund

One of the primary advantages to e-filing is that returns are processed in just 24-48 hours. This results in a refund in about 14 days as opposed to up to 6 weeks for a paper return; just 10 days if you don’t itemize tax deductions and use direct deposit.

Direct deposit options

If you’re an e-filer, you can designate up to three financial accounts to deposit your tax refund or use this money to purchase US Series I Savings Bonds. You can even gift the savings bonds to a child or grandchild to help save for college.

Accuracy rate

According to the IRS, 20% of tax returns prepared with paper and pencil have mistakes; the error rate on returns prepared electronically is just 1%. Furthermore, if there is a mistake on your tax return, the IRS can detect it and send back an error report in as little as 48 hours so that you can quickly fix the problem.

Opportunity to adjust your withholding

File early and you’ll likely see that having too much tax withheld from your paycheck. After all, 2 out of 3 taxpayers got a refund last year and the average refund was nearly $3,000. It’s better to adjust your tax withholding and get this money – about $250 a month! – as you earn it than to give the government an interest-free loan.

Here’s what to do now:

Folders, Folders, Folders!

As all of your forms start to trickle in (they must be mailed to you by January 31 so be on the lookout!), you need to have a record keeping system in place. Specifically, a filing system, and for many of this, that means FOLDERS! Set up different folders for each of the following: INCOME (This folder should include things like your W2’s from all your employers and any interest or dividend income from investments -1099-DIV or 1099-INT), DEDUCTIONS (This folder should include all of your deductions for property taxes, charitable giving and mortgage interest), and RECEIPTS (This folder should include all receipts eligible for deductions). You could even have a separate folder labeled HOMEOWNER for things like your mortgage interest form (Form 1098), and sale of your home (Form 1099-S) as well as a MISCELLANEOUS folder for things like your tuition statement (Form 1098-T), and state and local income tax refunds (Form 1099-G).

Review all your tax documents

Just because you have your filing system established doesn’t mean you should simply throw your forms into the folders and forget about it.  Review each document as it comes in.  Is everything correct? Any discrepancies? Know that getting a corrected 1099 or W-2 can take a while, so don’t delay if there are errors.

Take advantage of all credits and deductions

Chances are, you’re confused. After all, the last-minute compromise in the umpteenth hour to extend the Bush tax cuts included a bunch of other tax changes. Plus, a lot of 2009 tax credits expired. Just make sure you know the new 2010 tax rules do that you can take advantage of every break you’re eligible for, from the Energy And Appliance Tax Credit to the American Opportunity Tax Credit. This is where a program like TurboTax (used by 20 million Americans) can really help.  Plus, it will help you avoid making simple math mistakes that could be costly.

File early!

Once everything is together and you’re ready to file, file electronically.  E-filing is the quickest way to get your refund–it’s yours in as few as 14 days; 10 if you use direct deposit. Futhermore, electronic returns have 13% fewer mistakes than paper returns.

Play it safe by searching for 501(c)(3) organizations on the IRS’s publication 78, available at irs.gov.), and while many will happily accept everything from your vacation home to your commercial property, here are the three most common ways to make a contribution without a whole lot of effort:

Cash

Making a cash donation is the easiest way to give, and get back. For example, a $1000 cash donation would save you $250 in the 25% bracket; $350 in the 35% bracket.  Just remember to substantiate your gift with a letter or receipt from the qualified organization, a canceled check or a bank statement showing how much you gave.

Stuff

While it is often more profitable (and thoughtful) for you to donate used goods to a charity than it is sell them in a garage or yard sale, keep in mind that per 2006 rules, in order for you to claim a deduction on your ‘stuff’ – whether household items, electronics, linens, furniture or clothing – it has to be in good or better condition (unless you’re writing off a single item, appraised at over $500). To determine your item’s fair market value – what it would sell for in a thrift store – use our free ItsDeductible tool.

Appreciated securities

Giving appreciated securities – such as stocks or mutual fund shares you’ve held for over a year – is one of the best ways to fund your favorite charities because the benefits are twofold: you get to deduct the asset’s market value and you avoid paying capital gains. For example, say you purchased XYZ stock last year for $10,000 and now it’s worth $20,000. If you sold the $20,000 stock instead of donating it, you would pay capital gains tax (15%) on the $10,000 gain. Donate it instead and you’d save $1500 ($10,000 x 15%). Plus, you can deduct the full $20,000. So, if you are in the 25% tax bracket, this could generate another $5,000 in tax savings ($20,000 x 25%), bringing your total tax savings to $6,500.



Here’s the skinny:

Weight loss programs ARE deductible

All programs – whether a big commercial program like Weight Watchers, Jenny Craig or a physician or hospital-based weight loss program – can be deducted, providing your doctor has confirmed that your current weight is a threat to your health, and has therefore ordered you to enroll in a program to treat a specific disease, whether obesity (a designated disease as of 2002), hypertension, heart disease, or high cholesterol, for example. You must have this in writing.

Expenses must be legitimate

While you cannot deduct the obvious – such as the cost of diet foods (considered a personal expense), home exercise equipment, health club/gym/spa dues, nutritional supplements or any costs that are covered by insurance – legitimate program expenses include everything from initial fees to meeting fees to behavioral counseling, to appointments with physicians, dieticians, and nutritionists.

Consider costs

To get a deduction, costs must exceed 7.5% of your adjusted gross income. If you make $45,000, for example, you can deduct weight loss expenses above $3375; if you make $50,000, you can deduct expenses exceeding $3,750.

Vanity doesn’t count

Thinking about getting liposuction to suck away those extra five pounds you’re carrying on your hips? Considering joining a gym just because you want to look – and feel – better? Expenses, as such, that are merely beneficial to general health, do not count, but things like Bariatric surgery, FDA-approved weight loss drugs and other medical expenses – providing they relate to alleviating or preventing a physical or mental defect or illness – do.

Here are some year-end moves you should make now:

Boost your retirement account

By making pre-tax contributions to your 401(k) or 403(b) you’re not only reducing your adjusted gross income and overall tax bill, but you’re building up your savings, too. In 2010, you can contribute $16,500 to your 401(k) plan; those age 50 and over can pitch in an additional $5500. If you’re slightly below these limits, consider ratcheting up your contribution by Dec. 31st.

Start spending your benefit dollars

If you’ve set aside money in a flexible spending account (FSA) for medical expenses, find out how much you have left in the account, how long you have to use the money before you forfeit the balance (While you may have until mid-March 2011 to use up the funds, many accounts expire at the end of December–check with your plan administrator) and start spending it. Schedule an appointment to have your teeth cleaned, for example, and buy things like prescription glasses, contact lenses, and various medicine-cabinet stock (For a complete list of expenses that are eligible for reimbursement, go to http://www.wageworks.com)

Estimate your income and deductions

While year-end tax planning typically involves finding ways to defer income and accelerate deductions, this year is different. We are about to experience the biggest tax increases in nearly 17 years (and the first increase in capital gains taxes in 24 years), so if ever there was a time to do the reverse – accelerate income and postpone deductions – 2010 is the year to do it.

Review your portfolio

Before the end of the year, take your losses off the table (You can deduct up to $3000 of losses against ordinary income), and consider selling winners, too, because while the top rate is currently 15%; next year, it is scheduled to rise to 20%.

Put the AMT on your radar

The AMT, a parallel tax system with its own set of rules, does not allow for deductions for state and local taxes, home equity interest and other things – like personal exemptions. And it’s complicated – you have to figure your taxes under two sets of rules – the regular tax code and the AMT – and pay whichever is higher. TurboTax can help you figure this out, but chances are, if you paid the AMT last year, you’ll be caught again, so plan accordingly.

Consider coverting to a Roth

This is a big year for Roth conversions, and anyone can do it this year (the restrictive income limits that frustrated high-earning taxpayers has been lifted). There are considerable advantages to doing this – your assets grow tax-free, you don’t have to pay taxes when you withdraw this money, and there’s no minimum distribution requirements once you turn 70 1/2. Now, you will have to pay taxes on the conversion, but you can spread these payments out over the 2011 and 2012 tax years.

Take advantage of tax credits

If you buy energy efficient products or systems for your home – things like water heaters, boilers, heat pumps, air conditioners, windows and doors – you may be eligible for a federal tax credit that can put as much as $1500 in your pocket. For details, go to www.energystar.gov (and click on “Tax Credit for Energy Efficiency” on the bottom left-hand side of the screen).

Be giving

If you plan to contribute to your favorite qualified charities, make sure you do it by December 31st, and that you have receipts to prove it! You might also want to think about giving shares of winning stocks to your low-earning children (specifically, kids 19 or older and out of school or 24 or older if they are still in school). Reason being, if they earn under $34,000, their long-term capital gains rate for 2010 is 0%. Zilch!

You may know me from MSNBC, where I work as an on air Financial Analyst. You’ll find me on set every Saturday (with anchor, Alex Witt), and occasionally during the week, depending on what the “news du jour” is. My job, essentially, is to decipher the economic data and explain to viewers why they should care, and how things like financial reform, healthcare reform, budget deficits, a weak dollar and quantitative easing affects them.

That’s what I’m good at – breaking down complex subjects, and speaking in a language that anyone can understand.

My background as a print reporter – I have written for Inc., SmartMoney, Kiplinger’s, cnbc.com, the New York Times; I currently write for Real Simple, Reuters, and AOL’s walletpop.com – has served me well. I have interviewed everyone from economists to fund managers and written about everything from the housing market to inflation.

And now: taxes.

This year, things may seem more complicated than ever, particularly the uncertainty surrounding provisions that expired at the end of 2009. Not to mention, the many provisions that are due to expire at the end of this year: Washington has done a lot of talking about extending them, but they haven’t done it yet (tick tock).

Any idea what any of this means to you and your overall tax strategy? Are there steps you can take now to ease the tax burden down the road? I’m here to help you figure this – and all things tax-related!

Feel free to leave any questions, comments, concerns here, and I’ll try to make this season a little less onerous.

Vera