We are solidly in the last part of the year. The fourth quarter is rapidly approaching. That means that it is a great time to consider how you can reduce your taxes for 2011. Now is the time for tax planning for the rest of the year. What you do now can improve your tax efficiency, reducing your liability and ensuring that you don’t pay more than you have to. Here are some things to consider:
Deductions and Credits
Your first move is to consider the deductions and credits you might be eligible for toward the end of the year. Could you donate more to charity? See if you have some goods in good condition to donate, and deduct their current market value (make sure you get a receipt from the charity). Do you have a dependent care credit to take advantage of? What about the energy efficiency credit? Now might be the time to add a little more insulation to your home, or replace some of your windows.
It might also be the time to contribute more to your IRA. You won’t get a tax deduction for a Roth IRA contribution, but a contribution to a traditional IRA, a 401k or an HSA might be just the thing right now if you want a bigger tax deduction. Open one of these accounts if you haven’t done so yet, and you could find a great tax advantage to help lower your income for 2011.
Sell Your Losing Stocks
While the successful investor doesn’t want to sell investments just to sell them, it is possible to take a loss and use it to your advantage. You can offset capital gains by selling losers, and that can help reduce your tax liability. If you have some losing stocks that you want to unload, now might be the time to do it. Just make sure you avoid falling afoul of the IRS wash sale rule; you can’t buy a substantially similar stock for at least 30 days after your sale — otherwise you won’t get the tax advantage.
Consider Buying Business Equipment
If you have a home office, now is a great time to buy business equipment. I like to buy new computers for my home business this time of year. Not only can I get a discount by purchasing the last generation model, but I can also offset some of my home business income. If your home office is need of a chair, a desk, a new printer or some other equipment, now might be the time to head out and buy it. However, make sure that you are using the purchase strictly for business; otherwise, the IRS won’t allow it.
Also, now might be a good time to set aside dedicated office space for business use of your home. If you don’t have a specific area for your home office, set that aside now. Even if it’s just a small portion of your home, it can help reduce your tax liability.
Now is a great time to reconsider your expenses for the rest of the year. Look at your tax situation, and see if there are some ways to reduce your tax liability through the final part of the year. Consult a tax professional to make sure you are taking your deductions and credits properly.