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Tips for tax time

Created date

April 5th, 2010
YLi0410_FeaturedMoneyMatters
YLi0410_FeaturedMoneyMatters

Before you shed your sweater and head outside to plant your garden, don t forget to deal with the thornier side of spring season taxes. They re unavoidably unpleasant, but with the right information and some professional help, you can avoid common pitfalls and take the sting out of tax time. Before you drop your 2009 tax return in the mailbox or begin your 2010 planning, consider these tips.

Know the ins and outs of your IRA

Individual retirement accounts (IRAs) can be a great tool to stash away money for your retirement while seizing tax advantages. But if you don t understand the rules about taking distributions, withdrawing, or gifting money from your particular account, you can end up unintentionally triggering negative consequences. One of the things we see a lot is a lack of awareness around IRAs, says Rick Cotter, Washington D.C., district manager for H&R Block. Often, withdrawing money unnecessarily exposes people to taxes and by the time we see them in April, it s too late. He advises consulting with a tax professional before making any decisions about your IRA.

The bright side of investment losses

If your investment accounts have taken a hit in the rocky stock market, you may be able to recoup some of those losses at tax time. While you can t go back in time and unload those low-performing stocks before they tumbled, you can make sure you carry forward losses for as many years as possible. Worthless stock is important, and often goes overlooked, Cotter says. One thing we see fairly frequently is a deduction was taken in year one, but the carry forward wasn t retained and carried forward in subsequent years. So if you sustained losses back in 2008 when the market first started to head south, double-check to make sure you ve carried forward applicable losses on your 2009 return. Cotter also advises asking your accountant about any other tax advantages you can claim from investment costs like early withdrawal penalties. A good rule of thumb for investors is that if it costs you money, check and see if you can deduct it, he says.

Protect your assets

You should review your estate planning throughout the year, but it s not a good idea to consider tax implications this month while Uncle Sam is on your mind. If you re planning to sell a capital asset such as a vacation home or stock, you may be able to avoid taxes by gifting it to an adult child or grandchild in a lower tax bracket, Cotter says. You should also keep your eye on any new legislation that impacts estate taxes. While debate about changes to federal estate tax laws has grabbed headlines, you should also look closer to home. Amy McDuffee, director of channel planning for Executor s Resource, a Colorado-based estate management firm, says 14 states have a state level estate tax. Rates and exemption limits vary by state, so ask your tax professional whether or not you could be subject to state estate taxes.

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