Today is the last day for Tennesseans to take action to lower their 2011 federal taxes, according to the Internal Revenue Service.
“In order to claim certain benefits on your 2011 taxes, you need to take action no later than Dec. 31,” said IRS spokesman Dan Boone. “Taking steps now could save you money when you file your taxes next year.”
The IRS said there are seven steps taxpayers can take before the end of the year to save on 2011 taxes.
The first is to make charitable contributions. Donations must be made to qualified charities by the end of today to be deductible for 2011. Taxpayers must have a canceled check, a bank or credit union statement, a credit card statement or a written statement from the charity showing the name of the charity and the date and amount of the contribution. Donations charged to a credit card by Dec. 31 are deductible for 2011 even if the bill isn’t paid until 2012. Clothing and household items donated to charity must be in good used condition or better to be deductible.
Taxpayers can also install energy-efficient home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. For details see Special Edition Tax Tip 2011-08 on the IRS.gov web site.
A third tax-saving route is to contribute the maximum to retirement accounts. Elective deferrals to employer-sponsored 401(k) plans or similar workplace retirement programs, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees, must be made by today. However, taxpayers have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. A taxpayer normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over.
The IRS also said taxpayers can consider a portfolio adjustment by checking investments for gains and losses and making sales by Dec. 31. Taxpayers may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. Net capital losses that are more than $3,000 can be carried forward and deducted in future years.
Another way to save is to make a qualified IRA charitable distribution, which allows individuals age 70½ or over to exclude up to $100,000 from gross income that is paid directly from their individual retirement accounts to a qualified charity. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This tax benefit is currently set to expire after today.
For taxpayers who are planning on purchasing certain big-ticket items — such as a car, truck, motorcycle, RV or even an off-road vehicle — may want to do so by today in order to deduct the sales tax paid on that item for 2011. Taxpayers who itemize deductions can take a deduction for sales taxes paid or for state income taxes paid, but since most Tennessee residents don’t pay state income tax, the sales tax deduction is usually more beneficial for tax filers in the Volunteer State. The IRS provides tables and an online calculator to figure the general state and local sales tax deduction amounts, but sales tax paid on certain big-ticket items can be added to the amounts from the IRS tables or calculator.
Lastly, the IRS said small employers should not overlook the small business health care tax credit. Small employers that pay at least half of employee health insurance premiums may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees that pays an average wage of less than $50,000 a year may qualify. For more information, see the Small Business Health Care Tax Credit page on IRS.gov.