We’re a full month into to 2010, but there’s still at least one big thing you can do to lower your tax bill for 2009: Contribute to your IRA. For 2009, you can sock away up to $5,000 into this great retirement savings vehicle ($6,000 for those over age 50). The sweet thing about it is that you’ll also lower your 2009 tax bill at the same time.
Here’s how it works: All the money you contribute to your traditional IRA between now and April 15, 2010 can be deducted from your total income for tax purposes. Example: If you make $50,000 and contribute $5,000, you’ll only be taxed on $45,000 of income for 2009. The government is giving you a nice tax incentive. By saving for your future, you actually save on taxes now (income limitations do apply). Plus, your money grows tax deferred. The only time you have to pay taxes on it is when you withdraw the money in retirement. Wanna know more? Jim Wang of Bargaineering.com pulled together a short overview video for our fans thirsting for more IRA know-how:
A note about the Roth IRA: The Roth IRA is a great way to save for retirement too (as opposed to the traditional IRA). The difference is that with the Roth you contribute to it with after-tax money, so you don’t get a tax deduction now. You do, however, get away with the money scot free when it comes time to withdraw it in the future. You’ll never pay taxes on it again – you’ve already paid them.
Get a 2009 credit for a home purchased in 2010
There’s another way to beef up your 2009 refund by doing something in 2010: Buy a house. OK, admittedly, this is more complicated than sending a check to your brokerage account for an IRA. However, if you’re in the market, don’t miss this one. First-time homebuyers can get an $8,000 credit on their 2009 taxes by buying right up through April 30, 2010. In fact, as long as you got under contract by April 30, you have until June 30, 2010 to close (you may need to amend your return in that case). Income limitations (on the order of $125,000 for singles) do apply.
Additionally, if you’re not a first-time home buyer, you could be eligible for a credit of up to $6,500 if you’re a “long-time resident.” That means you must have owned and lived in the same home for five years prior to buying and moving to your new home.
Looking ahead to 2010
If saving money is part of your New Year’s resolutions, now is the perfect time to think ahead for next year. A little bit of conscious effort now can make a big difference for your 2010 taxes. Here are some examples:
Start keeping track of charitable contributions now. They all add up. Make sure you get receipts anytime you donate clothes, goods, or cash to charities. A paper trail is a great way to keep records the way the IRS wants you to and it keeps you from forgetting what you donated so you can be sure to deduct your contributions.
Adjust your W-4 to get more money now. There’s a little payroll form called the W-4 that allows you to adjust how much your company takes out of your paycheck to give to the government. If you know you’re going to have bigger deductions in 2010 or if you usually get a big refund, you can adjust your W-4 to get more money in your pocket now. After all, a refund is your money, which Uncle Sam has held in safekeeping for you all year long. When you get a refund, you’ve overpaid and you’re getting change back.
Get paid to be green. Current tax laws allow you to take some great deductions for energy-saving home improvements. You can take up to a $1500 total credit in 2009 and 2010 for items like energy-efficient windows, skylights, central air-conditioners, insulation, and a lot more.
You can also take a whopping 30% off the cost of things like solar electric systems and wind turbine energy systems with no caps on the credit. For example, if you put in a $50,000 solar electric system, you could take a tax credit for $15,000. It really pays to be green!