Courtesy graphic Tax experts say there is still plenty of time to implement some tax-saving strategies before the end of the year.
Pay bills early, make donations, install new windows — With about two and a half weeks remaining to the end of the year, it’s the last chance for tax planning.
Taxpayers can still do a number of things to help reduce their taxes before the window closes on 2010, according to tax preparers.
While there’s not much new expected this year, there are still plenty of opportunities to be strategic and take advantage of some of the credits that exist, according to Kay Berry, district AARP Tax Aide coordinator for Clovis and Portales.
With the mild winter in the area, and holiday vacations coming, the next couple weeks might be a good time to do some of those home improvements that have been put off.
Berry said an energy credit of up to $1,500 for energy efficient improvements by homeowners can help offset their taxable income to reduce the amount they owe on their taxes this year.
For windows and doors that qualify, the cost of materials can be used as a deduction while some furnaces and other items will give deductions for parts and labor, she said.
Be familiar with which items qualify and keep receipts and product specification labels from the items, she said.
But be warned, she said, “If you don’t owe a penny you aren’t going to get anything,” explaining the energy credit is strictly used to reduce the amount a taxpayer owes, but is not refundable.
And go ahead and drop the kids off with the sitter a couple more times, because child and dependent care credits also work to offset taxes.
Berry said people who have bonds or funds may want to talk with a financial adviser or accountant about the advantages or disadvantages of cashing those in before the first of the year.
Some banks and credit unions, she said, offer financial planning and advisement services free of charge that may help low-income taxpayers.
Savings bonds, once matured, cease to accrue but their value could be earning interest, she said, which may be worth the tax liability.
First-time homebuyers who purchased a home before the deadline can still file for a tax credit of up to $8,000 as long as they plan to maintain the home as their primary residence for three years, she said.
Earned income qualifiers can also now claim three children instead of two as in years passed, she said.
For those who took unemployment in 2010 there are no breaks, Berry said, explaining unemployment is fully taxable, unlike 2009 when a $2,400 break was given.
It is also a good time to go ahead and pre-pay college and second-semester tuition, make a full payment on property taxes, medical bills or any other tax-deductible expense before the end of the year so it can be claimed, said Shelley Winn, AARP Tax Aide coordinator for Roy Walker Community Center.
But some tax planning should have been taking place throughout the year.
Taxpayers who worked odd or self-employed jobs receiving 1099’s are getting a little extra scrutiny from the state in recent years
People not on payroll often receive 1099’s from employers at the end of the year, Winn said, and, if they weren’t expecting it, are surprised to find out they are solely responsible for all their taxes.
But in recent years, particularly in light of budget shortfalls, the state has been enforcing the collection of gross receipts taxes on that income, which is due quarterly.
Often taxpayers know they will have to pay income tax on miscellaneous income, but they aren’t aware they are supposed to pay GRT, a tax applied to goods and services, typically referred to as “sales tax.”
“It’s been around a long time (but) a lot of it is getting worse as far as the state coming after people because they’re (New Mexico) short on money,” Winn said.
“A lot of them don’t realize they’re really, really going to have to pay it. They just figure it will go away.”
And while Winn said if the GRT system is totally separate from the state and federal returns people file, state taxation departments cross reference taxpayer’s returns to determine when GRT is owed.
If a taxpayer does end up owing a debt they cannot pay, Winn said they should pay what they can, then call the IRS and set up payments.
And though it may seem illogical, with the cost of interest and penalties, Winn said sometimes it’s actually cheaper in the long run to take out a loan or use a credit card to settle a debt with the IRS.