The Boomerater™ Report, our weekly collaboration with online baby boomer resource Boomerater, this week explores what you can do now to lower your 2009 income taxes. “With the end of the year approaching I’d like to learn about anything I can do now to lower my taxes,” a Boomerater member asks. “Are there any stimulus offers I can take advantage of now before they expire?” Other Boomerater members offered these suggestions:
[See 6 Money Lessons of the Great Recession.] Deduct healthcare expenses. If your medical expenses exceed 7.5 percent of your adjusted gross income, you can deduct the excess. Health insurance premiums, medical, dental, and prescription drug expenses are all eligible. If you’re covered by qualified high-deductible health insurance, a health savings account (HSA) allows 2009 contributions of pretax income (or deductible after-tax contributions) up to $3,000 for self-only coverage ($3,050 in 2010) and $5,950 for family coverage ($6,150 in 2010). Account holders age 55 and older can contribute an additional $1,000 to their HSAs in 2009.
Take advantage of stimulus tax breaks. The 2009 stimulus package has tax breaks for nearly everyone. Find more details regarding how these tax breaks might affect you by going to the Turbo Tax website and click on the Tax Calculators and Tips tab. There you will find the Featured Tax Guide that outlines the specifics.
Buy now, save later. There are a number of purchases you can make in 2009 that will give you significant deductions. If you buy your first home by December 1, you can deduct 10 percent of the purchase price, up to $8,000; to qualify, your adjusted gross income must be less than $75,000 ($150,000 married). If you buy a new car (not used) you can deduct sales and excise taxes for a car or truck worth up to $49,500, even if you don’t itemize your taxes. This deduction phases out if your adjusted gross income is more than $125,000 ($250,000 married.)
[See How to Get Your Finances Back on Track in 6 Steps.] Go green to save money and energy. Now is the time to go green! Certain products that are installed in 2009 will earn you a considerable tax credit. By installing new storm windows, we are able to deduct $1,500 against our 2009 taxes. We also plan to install new insulation. You can get tax credits at 30 percent of the cost up to $1,500 for some energy efficient windows and doors, insulation, water heaters, metal and asphalt roofs, and heating-cooling systems. The deal is good for 2009 and 2010, if you are remodeling a home (not building a new one). Plus, you can get the 30-percent credit with no upper limit for both existing and new-home construction when you buy solar panels, solar water heaters, and some other energy-efficient items. My brother lives in the South and built a house this year with solar panels and a solar water heater. He expects to get a lot back. I use the government's Energy Star website to track tax credits and rebate offers.
Make the most of investment losses. Consider selling a portion of your taxable investments if you can recognize a loss. If net losses exceed net gains, you can deduct only $3,000 of losses per year against ordinary income, but you can carry forward excess losses to future years. Be aware of “the wash sale rule,” which prevents you from taking a loss if you repurchase the same security or buy a substantially identical security within 30 days before or after you sell it. A loss can then only be recognized when you sell the replacement. You can purchase a similar security or shares in a fund that holds securities much like the ones you sold, or simply wait 31 days to repurchase the same security.
Read other member tips on what you can do now to reduce your 2009 taxes. Boomerater is an online resource for baby boomers, with comprehensive directories to help you find everything from financial advisers to retirement communities. The site also contains forums where boomers can post questions and swap first-hand experiences. If there are questions on your mind that you would like answered by other people who have faced similar situations, or you have advice of your own to share, go toBoomerater.com and participate in the forums. Say that The Best Life sent you.