Year-end tax saving strategies
Football, family get-togethers and making travel arrangements may be on many people's minds during this time of year. It also is smart to think about year-end tax saving strategies.
Fortunately, those individuals who are looking for a tax break still have time to reduce their 2012 tax bill, said Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist.
"It's always a good idea to make a year-end contribution to your IRA. Actually, you have until April 15, 2013, to make all of your 2012 contributions," St. Pierre said. "If you don't have an IRA, now is a great time to start one. Again, you'll have until April 15 of next year to set one up and claim a 2012 tax deduction. A qualifying individual can contribute up to $5,000 ($6,000 if you are age 50 or over) this year. Consumers may also want to consider extra payments at the end of the year into their 401(k), 403(b) or 457 plans. With these plans, you can contribute up to $17,000 ($22,500 if you are age 50 or over) this year."
The end of the year is also a good time to make any planned charitable contributions, especially if you itemize on your tax return. Payments for any job-hunting expenses can qualify as itemized deductions.
"For those Oklahomans who may have lost their jobs or had reduced wages in 2012 do not overlook filing for the Earned Income Tax Credit if you qualify," St. Pierre said. "A married worker with three children who earned less than $50,270 could qualify for up to the maximum credit of $5,891. What's great is that this tax credit is refundable, which means you'll receive the full amount of the credit as a refund, even if you pay no taxes."
If your property taxes are due in January, consider paying them before the end of the year to increase your Schedule A deductions. Homeowners may want to pay their January mortgage in late December in order to take an additional deduction for interest paid. Just make sure the payment is processed before the end of the year so the interest amount gets reported on your 1098 form.
The mortgage insurance premium deduction expired this year so check with your mortgage company to see if you have enough equity built up in your home to allow you to drop this coverage. Lenders are required to cancel private mortgage insurance when you pay down your mortgage to 78 percent of the purchase price.
Unfortunately, there are some other popular tax credits and deductions that expired in 2012. These include tax credits for installing energy efficient windows and doors, the $250 educator expense deduction and the tuition and fee deduction. The lifetime learning credit and the American opportunity credit are still available for 2012.
"No one really likes to pay taxes, but taking some time now before the end of year to evaluate your options can save you some money when you file your taxes early next year," St. Pierre said.