1. Ready, Set…Wait!
Everyone knows it is a good idea to prepare your taxes well in advance of the April deadline. If you are like the majority of Americans, you filed your returns by the end of February last year. This year, however, early filers should be prepared to wait a little longer because of Congress’s last minute 2010 Tax Relief Act. Not everyone will be affected by the delays as the Internal Revenue Service updates its systems, but it is a good idea to hold off on submitting until the IRS gives the green light.
That being said, now is the time to get organized. You know the drill. Collect all of the documents you will need including last year’s tax return, W2s, 1099s, receipts, etc. If you have a lot of papers, group similar documents together into a system you will easily remember. While you are at it, develop a filing plan for 2011, so all of your important documents will be easy to access next year with the help of Accountants.
When you have everything you need, go ahead and start preparing your returns. Just hold off on actually submitting if you are claiming any of the newly instated deductions or you itemize on Form 1040 Schedule A.
If you are typically among the ranks of the last minute filers, you may be interested to know that the deadline this year has been moved back to April 18th, due to a holiday in Washington DC.
2. Max Out Traditional or Roth IRA Accounts
You have until April 18th to make contributions for 2010. The maximum annual contribution to an IRA account is $5,000 for individuals under the age of 50 or $6,000 for those 50 and over. Contributions to a traditional IRA account may be tax deductible saving you money now. For those investing in a Roth IRA, the tax benefit comes later when qualified withdrawals during retirement are tax free. Your financial advisor can provide more information about the best retirement investment strategies given your age, income level and personal circumstances.
To learn more about Roth IRA’s visit: http://fortierfinancial.net/2010-the-year-of-the-roth/
3. Go Ahead and Give
For the last decade, an individual was allowed to give away up to $1 million tax-free during their lifetime. This year the limit was raised to $5 million, but the new rules will not last for long. What will happen at the end of 2012 is anyone’s guess, so now is the time to consider giving if you may benefit from the higher limit. Just like under the previous rules, individual gifts of up to $13,000 do not count toward the $5 million total. Accordingly, if a gift of $100,000 was made, only $87,000 of those dollars would count toward the lifetime exemption. For those who have already reached the limit of $1 million, this is a particularly valuable opportunity.
4. Consult an Estate Planner
The tax law approved in December also affects federal estate taxes. The good news is that the new rules are beneficial for most, but you may need to update your estate plan to take advantage of the higher exemption.
Consult with an estate planner to see if there are any changes you should make to your will. Also be aware that the new rules expire in two years, so be prepared to make adjustments again in 2013 if necessary.
This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
