5 End-of-Year Tax Planning Tips

By Jennifer Chappell Smith

Make the most of the final quarter to get advantages on your 2010 tax filings. From getting paperwork organized to reducing taxable income, there’s a lot you can do to get a jump-start on filing your yearly dues to Uncle Sam. Here are five top to-dos:

1. Spend healthcare dollars. If you have a Flexible Spending Account that allows you to set aside pre-tax dollars for health-related costs, spend it or lose it. Schedule those doctor visits, get new eyeglasses, and refill prescriptions before the new year.
2. Make charitable contributions. IRS rules say each spouse can give up to $13,000 to as many people or organizations as he or she wants without paying gift taxes. Make sure to get a receipt if the gift is over $250, and get an itemized receipt from organizations such as Goodwill or the Salvation Army.
3. Contribute to an IRA and 401(k). You can give up to $16,500 to your employer-sponsored plan, such as a 401(k), 403(b), or 456 plans, and reduce taxable income by Dec. 31. The contribution limit for a traditional IRA is $5,000, or $6,000 if you’re 50 or older, and you have until April 15 to make it and still count it for your 2010 tax filing.
4. Take advantage of today’s capital gains tax rate. Currently at 15% for high-income earners, this rate could leap to 20% if Congress lets the Bush-era tax cuts expire at year’s end. If you make more than $250,000 and are thinking of selling a piece of property, boat, or the like, complete the transaction by year’s end or you’ll likely be paying more in capital gains tax down the road.
5. Make an extra mortgage payment. This will reduce your income since you can deduct the interest.