2010 Year End Tax Tips

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New tax breaks may save you money come April 15.

There are a number of steps you can take each year to reduce your taxes. This year, several new tax breaks were introduced to help individuals, families and business owners struggling in the ailing economy. Here are a few you may be eligible to take advantage of when doing your taxes in 2011.

No limit on itemized deductions.

While this may change next year for the $100,000-and-over tax bracket, for 2010 there is no limit on any itemized deductions. Before December 31, pay any charitable contributions, local or state taxes, health-care costs, or anything else you can itemize on your taxes.

Credit those college expenses.

The American opportunity tax credit (which expanded and re-named the Hope credit) can be claimed for tuition and other fees paid by students or their parents. (The credit is phased out at higher income levels.) The maximum amount you can claim has been raised to $2,500 for 2010—a $700 increase. The number of years you can claim this credit has also increased from two years to four post-secondary education years.

Expanded Earned Income Tax Credit (EITC).

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This tax was expanded earlier this year for tax payers to apply to their 2009 taxes, but it also applies to filings for the year 2010. Eligibility and amount depends on earned income and family size, although single people and those without children are also eligible for smaller amounts.

Go green.

You can qualify for a 30 percent tax credit for making green home improvements in 2010. For smaller energy efficient upgrades, such as replacing windows or adding insulation, there is a $1,500 limit that you can claim. For larger upgrades, like solar panels or geothermal heat pumps, you can claim the entire 30 percent of the purchase cost.

Home buyer tax credit.

First-time homebuyers who purchased their home as a principal residence by April 30, 2010, and completed the sale by September 30, 2010, are eligible for a tax credit up to $8,000. (Those who weren’t first-time buyers are eligible for a credit up to $6,500.)

Sell your winning investments.

If you plan to sell some of your investments in the near future, do so before the end of the year. While not set in stone, it’s likely that the IRS will raise the tax on long-term capital gains in 2011 to 20 percent. (The current rate is 15 percent.) Sell prior to December 31 to take advantage of the lower rate—you can always re-buy the same security next year.

If you’re self-employed, deduct your health insurance premiums.

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Thanks to the Small Business Jobs Act, signed on September 27, self-employed business owners can now deduct their health insurance premiums before calculating their payroll taxes. (Previously, premiums were deducted after this point.) This means the overall tax for the self-employed will be reduced, because the tax is being calculated on a lesser amount. (Calculate how much this will benefit you here.)

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

Source: Investopedia, Reuter, MoneyNing, IRS, Energy Star, National Association for the Self-Employed
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