Save on Taxes, Now and Next Year

by Lynn B. Johnson on March 26, 2010

TaxesSo, April 15 is right around the corner, and with it, the dreaded looming day to pay Uncle Sam. If you earned too much money last year and are looking for some ways to trim your tax bill now, as well as next year, look no further.

If you need a break now and have a few extra thousand dollars kicking around, now is a great time to invest that spare cash in a traditional IRA. Make a regular (NOT a rollover) contribution and see how it reduces your adjusted gross income. This will lower your tax bill across the board, though the maximum deduction is dependent upon your modified adjusted gross income total and also your filing status and cohabitation situation (where applicable).

These days, you can contribute $5,000, or $6,000 if  you’re age 50 or older. Additionally, if you’re married and filing jointly, both of you can contribute the maximum, even if only one of you is a wage-earner, so long as you earned at least $10,000. This minimum combined compensation limit rises depending upon whether one or both of you is age 50 or older, to $11,000 or $12,000, respectively.

If you qualify as a low-to middle-income taxpayer, check out the credit for qualified retirement savings contribution. This lets you claim a credit on your tax return for a percentage of the qualified retirement-plan contributions you made, based upon your income and filing status. Talk to your accountant, or check out the information on your Turbo Tax software.

You have until April 15 to make these investments, so get on the stick if you want to take advantage of the break for the 2009 tax year.

Looking ahead to next year’s tax bill: now is a great time to start moonlighting as something that has you working at home. As a hobbyist, you can list yourself as an “independent artist” and claim the income you make by selling your wares on eBay, etsy, or the like. As such, you can write off all applicable materials, books, magazines, etc. on your 2010 taxes.

Best of all, though, is that if you set up a special work-nook in your home, you can write off that square footage, as well as a percentage of your electricity and other applicable utilities, furniture, and job-related expenses.  The benefit of this is that if you itemize your deductions, and your deductions are higher than the standard deduction, then you save money! My husband has been doing this for years and, as a result, his hobby pays for itself. Not a bad deal!

(One more idea: if you get busy right now and have a kid before January 1, 2011, you’ll get an extra $1,000 tax credit. This is the only time that having a child will save you money, though, so don’t rush into it lightly.)

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