Here's Your Tax Season "Checklist"
Tax season is here. You've got until April 18, 2011, to file your taxes, so it is a good time to think about some moves to help improve your situation. With these thoughts in mind, here are some "tax-smart" moves to consider:
- Boost your 401(k) contributions.
By making pre-tax contributions to your 401(k), you can lower your adjusted gross income. And if your employer offers a "Roth" 401(k), you may want to take advantage of it. Your Roth 401(k) contributions are made with after-tax dollars, so you won't lower your adjusted gross income, but your account has the opportunity to grow tax-free, and any withdrawals you make during retirement won't be subject to income tax, provided you're at least 59-1/2 and you've held the account for at least five years.
- "Max out" on your IRA.
If you have a traditional IRA, your contributions may be tax deductible, and your earnings are always tax deferred, which means your money has the opportunity to grow faster than if it were placed in an investment on which you paid taxes every year. Taxes are due upon withdrawal and withdrawals prior to age 59-1/2 may be subject to a 10 percent IRA penalty. If you have a Roth IRA, the rules are similar to those governing a Roth 401(k): Your contributions aren't deductible, but your money has the opportunity to grow tax free, provided you've had your account at least five years and don't start taking withdrawals until you're 59-1/2. (You'll have to meet certain income guidelines to qualify for a Roth IRA.) You've got until the tax-filing deadline to contribute to your IRA for the 2010 tax year, for which the maximum contribution amount is $5,000, or $6,000 if you're 50 or older. And once you've "maxed out" on your IRA for 2010, you can start contributing for the 2011 tax year.
- Increase your 529 contributions.
By putting money into a 529 plan, you can help your children, or grandchildren, save for college. Earnings on a 529 plan have the opporunity to grow free of federal income tax, and withdrawals, if used for qualified higher education expenses, are also federally tax-free. Contributions may be eligible for a state income tax deduction or credit in certain states for residents who participate. Plus, by using the 529 plan to provide financial resources for your child, grandchild or other beneficiary, all or a portion of the gift may be removed from your taxable estate.
- Be charitable.
By contributing to a qualified charity, you can claim a deduction on your taxes, assuming, of course, that you itemize. And if you donate stocks or other assets, you can avoid paying capital gaines taxes, because it will be the charity, not you, that eventually sells the asset.
- Take advantage of favorable rates on capital gains and dividiends.
Recent tax legislation included a two-year extension on the maximum 15 percent tax rate on long-term capital gains and qualified dividends. As a result, you still have incentives to be a "buy-and-hold" investor and to seek out quality companies that can potentially pay dividends.
Although tax season may end in April, you can make tax-smart moves throughout the year. So keep your eyes open for these opportunities, and take full advantage of them.
(Edward Jones disclaimer: Edward Jones, its employees and financial advisors cannot provide legal or tax advice. Please consult your qualified legal professional or tax advisor regarding your particular situation.)
Now for the good stuff: How to win & what you win!
Post a blog comment below telling us about some aspect of your "Tax Season Checklist": how you organize for tax time, whether you file yourself or have it done by someone else and why, what things you itemize, or simply what you got back and how you plan to spend it!
All comments received by midnight on March 31st will be entered into a random drawing to receive a FREE personal consultation with Stephanie Johnson of Edward Jones for your choice of a "Portfolio Review" OR "Planning for Your Child's Future." (She really is a fantastic, down-to-earth, common sense kind of gal, with real-world suggestions for all household income levels!)
Some things to remember:
- All comments are moderated. Your comment will not appear immediatly after you send it. Check back the next day to be sure. If your comment does not appear within 24 hours then it was NOT submitted properly. Please try again.
- Anonymous comments will be posted but will not be entered for the drawing. If you don't have a gmail, LiveJournal, AIM, OpenID, or TypePad account you can sign up for one so your comment will not be anonymous OR you can comment with the Name/URL option and include your email address in the body of the comment OR you can simply include your first and last name and email address in the BODY of your comment so I can contact you if you are the winner. If I can't contact you, your comment will not be included in the drawing.
Let the commenting begin! I'm interested in hearing from YOU! Tax time can be a stressful event and we can all use tips and advice to make it easier.
Stating a bacnk account for your child/children:
ReplyDeleteBy starting a bacnk account for your child/children and put so much money in it every time you get paid, or as much a month as you want, it will add up and give them more oppertunities in the future with that account to help them.The thing is they can not get into this account until they turn 18, it can help them with college or anything else they need to get there future going.