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Last Minute Tax Deductions

As 2010 draws to a close, you still have an opportunity to impact the final figures that will show up on your tax return in a few months.   In this Tax Alert, we'll share a handful of items for your consideration.

Charitable Contributions
Donations you make by the end of the year are deductible if you itemize your deductions on Schedule A.  Donations made by cash or check need to be mailed before January 1, 2011 to be deductible this year.  Non-cash donations need to be delivered prior to that date.

One convenient way to make sure to meet these deadlines is to make donations online through a charity's website.  Typically, you'll receive an electronic confirmation right away.  In addition, you can use a credit card to defer actual payment.  You'll get credit for the donation as of the date your card is charged, but can pay later when the charge shows up on your monthly statement.

Finally, there are a number of charities located in Larimer County whereby you can obtain a 25% state income tax credit in addition to the tax savings for the donation.  The list can be found at the following link: Larimer County Enterprise Zone Projects

Home Mortgage Interest
You can make your January mortgage payment this year and deduct the interest portion if you itemize deductions on Schedule A.  You need to make the payment early enough so that the mortgage company receives it this year and includes the additional interest expense when they prepare and issue Form 1098 to you and the IRS.

Retirement Plans
Many taxpayers participate in 401k plans sponsored by their employers.   Most plans allow participants to change their deferral percentage for special payments, such as a bonus.  If you will be receiving a holiday or year-end bonus, you should consider increasing your deferral percentage to decrease the amount that will be subject to tax.

Self-employed taxpayers can setup their own qualified retirement plan and deduct as much as 20% of their net profit for the year.  The plan and related paperwork must be completed by the end of this year, but you can wait until next year to decide how much to contribute and deduct on your 2010 tax return.

Capital Gains
Although not a deduction, paying zero tax on a capital gain is a good thing, and worth mentioning.   Single taxpayers with long-term capital gains and taxable income less than $34,000 ($68,000 for joint taxpayers), pay no tax on those gains.  Now would be a good time to take one last look at your investment portfolio to see if you can take advantage of this special tax break.

Residential Energy Improvements
Through the end of this year, you have an opportunity to make selected energy improvements to your home (insulation, windows, etc.) and get back 30% of your investment as a dollar-for-dollar income tax credit, up to a maximum of $1,500.  To qualify, the improvements must be paid AND installed by the end of this year.  After 2010, the credit rate drops back to 10% with a lifetime cap (since 2001) of only $500.

While it might be too late to make significant improvements like doors and windows, beefing up your attic's insulation could be done during this holiday season before going to your New Year's Eve party.

Our office will be open through December 31st so feel free to give us a call with any last minute questions or ideas for reducing your tax liability for this year.  We will be here to help.

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