Don’t lose that post-April 15 “glow.”
Okay, maybe “glow” is too charitable of a term. The bleary-eyed days around Tax Day are perhaps the only times during the year that the typical American taxpayer thinks (or, frankly, actively cares) about things like a withholding rate, adjusted gross income or whether the couch somehow counts as a deduction. “By April 16, lethargy sets in,” says Beth Kobliner, author of Get a Financial Life: Personal Finances in Your Twenties and Thirties. “People are so glad it’s over, and don’t want to think about taxes until next year.”
But that might not be the best strategy. After all, this isn’t just the end of one tax year, it’s also the beginning of (and, technically, well into) another. While all the figures and lingo are fresh on your mind, make the most of them by checking out the newest tax laws and timely perks. They could mean the difference between owing money and getting a fat refund next year. Here are eight easy ways to get a profitable head start on your 2009 return:
• Don’t get over those losses from last year. Sure, psychologically, you should let go of those hits you took in your stock portfolio in 2008. But if you indeed realized capital losses by selling shares, you can carry over the leftover losses to 2009 and beyond. “If you lost $21,000 last year, you can claim $3,000 a year over the course of seven years,” says Mickey Reedy, a member of the National Association of Enrolled Agents. “If a few years from now you suddenly have a $10,000 capital gain, you can use those old losses to help offset it.”
• Make sure you’re paying enough taxes. The making Work Pay Tax Credit, part of the American Recovery and Reinvestment Act, has probably added a few dollars to your paycheck. But it may have also tweaked your withholding rate in a way that will make you owe money this time next year. “The tables used don’t know your whole situation,” says Barbara Weltman, an attorney and contributing editor to the J.K. Lasser tax guides, “so both spouses in a household may be getting too much of a credit on their paychecks, and end up having to pay it back.” You can figure this out by punching in some figures on the IRS’s Withholding Calculator (http://www.irs.gov/individuals/article/0,,id=96196,00.html). “This is an easy one — you don’t even have to talk to anybody,” says Kobliner. “If you need to change anything, you can print out a new W4 from the IRS site and take it your HR person. ”
• Keep an eye on your AGI. If your income hovers around $75,000 as a single filer, or $150,000 as a married couple, you teeter on the brink of scoring (or losing) several tax credits and deductions that have income caps at those levels. Before you stash away that 2008 return, look at the AGI, which is your gross salary minus deductions. “People get confused about AGI,” says Kobliner. “Don’t assume you‘re not eligible before you figure it out.” If you’re still close to the line, then you can do a few things to keep you under that threshold — such as increasing your contributions to a 401(k), a health savings account or a deductible individual retirement account (IRA).
• Buy a house. There are already two good reasons to buy this year: low interest rates and still-low prices. The tax incentive is better than ever, too. Unlike last year, when the $7,500 tax credit for a first-time homebuyer had to be paid back over time, this year’s tax break goes up to $8,000, depending on the price of the house, and is yours to keep, assuming you stay in that house for at least three years. Plus, many people don’t realize that the IRS defines “first-time” homebuyer as someone who hasn’t owned a home in at least three years.
* Can’t swing a house? Buy a car. You’ll probably be able to deduct the sales tax even if you don’t normally itemize. The only catches: It has to be a new car (not certified, pre-owned), bought between February 17 and December 31 of this year, and you can only deduct the sales tax up to $49,500 in sticker price. You also can’t earn much more than $125,000 a year as single filer, or $250,000 as a married couple.
• Go green at home. The old version of this energy-efficiency credit was $500. In most cases it is now $1,500, based on calculating 30 percent of your costs. For some items that you might buy, such as windows and insulation, you can only take the credit for a total of $1,500 during 2009 and 2010. For other features, such as solar panels or small wind-energy systems, there is no upper limit and you can take credits through 2016. Check out the list of qualifying materials at www.energystar.gov/index.cfm?c=products.pr_tax_credits#c2.
• If you’ve lost your job, watch those unemployment checks. You still have to pay taxes on that income, but the government has added one break for 2009: the first $2,400 of unemployment benefits received this year is tax-free, and that limit can apply to each married partner in a household if they both lose jobs. To avoid a tax bill on any benefits beyond that $2,400, fill out Form W-4V (http://www.irs.gov/pub/irs-pdf/fw4v.pdf) to have taxes taken out as you go.
• Make a summer date to talk with your tax preparer. The months between June and August are a great time to touch base about any changes in your income or tax status, or about new rules that may pop up between now and the end of the year. (It’s also a great time to shop for a new tax preparer if you flew solo this past year. Choose a tax attorney, a certified public accountant or an enrolled agent. These are the only professionals who could represent you in an audit.)
At your summer meeting, bring a paycheck stub so that the tax preparer can see what your income is so far, says Reedy. “Looking at six or seven months you can pretty well extrapolate out to a full year.” You can even hash out what kinds of receipts you should be filing away now, so that you won’t be pulling your hair out looking for them next spring. It may sound mundane, but it pays off, says Kobliner. “It just keeps your head in the game.”