Get on the ball and lower your tax bill.
(MONEY Magazine) -- Next April may feel light-years away, but December will be here before you know it -- and many of the benefits you can reap on tax day require you to act well before the end of the year.
"The further ahead you start your tax planning, the more strategies you will have to save money," says Indianapolis accountant Kevin Aaron. The early-bird tactics that follow can together keep thousands of bucks in your pocket.
Reap green credits
The tax credits for energy-efficient basic home improvements -- including the installation of insulation, certain HVAC systems, water heaters, windows, doors, and roofing -- are skimpier this year.
But depending on the project, you can still recoup $50 to $500 of costs (assuming you haven't claimed the $500 lifetime limit). Go to energystar.gov for details.
There's no sign these credits will be renewed. So if you've been meaning to do this work, get a move on. "You'll want to start talking to contractors in October or November," says New York City CPA Robert Ganer.
Look over your portfolio to see if you have poor performers to unload. You can use capital losses to offset gains.
With any extras, you can shelter ordinary income, up to $3,000 for singles or couples filing jointly. And whatever's left over can be carried forward to 2012 and beyond.
You can take advantage of losses on investments you like by selling shares, then buying them again once 30 days have passed. (The "wash sale" rule prohibits you from claiming a loss if you buy and sell the same security within 30 days.)
The risk: The stock could recover before you can repurchase it, not unthinkable given recent volatility.
Got a loser you think could turn around fast? Houston financial planner Shari Manning suggests doubling your position, then waiting 30 days. If you've still got a loss, sell your original stake for the write-off. If the loss is erased, you made money; you'll just have to decide whether you want to keep holding twice as much.
Make retirement moves
While you have until next April to fund an IRA for 2011, you have only until the end of the year to max out a 401(k).
You can put away $16,500, or $22,000 if you'll be 50 or older by Dec. 31. Even upping your contribution by $1,000 cuts your federal taxes by $280 in the 28% bracket. Make the change now so you can stretch the payroll deduction over three months.
On another note, if you converted a traditional IRA to a Roth in 2011, and have since suffered huge losses, you might want to reverse the conversion (what's called a recharacterization).
The reason: Your tax bill is based on the IRA's value at conversion, so you'll owe income taxes on money you no longer have, says New York City CPA Ryan Himmel.
Say in late April you converted a $100,000 IRA invested in an S&P 500 index fund. Four months later you'd have about $85,000. So you'd save $4,200 in federal taxes if you recharacterized, then changed back to a Roth. (You must wait 30 days or until next year, whichever is longer, to switch back.)
You also still have a chance to recharacterize a 2010 conversion, but act fast. That deadline is Oct. 17.
Donate like a king
Lots of folks wait until late December to make charitable contributions, but starting earlier may allow you to do more good without feeling much more pain.
You can spread your philanthropy out, rather than squeezing it in over the holidays. Use this time, too, to really clean house. Donating gently used belongings worth $2,000 will save $560 in the 28% bracket.
Particularly if your state taxes are low, you may find it difficult to amass enough itemizable expenses to exceed the standard deduction ($11,600 for couples filing jointly, $5,800 for singles). Accelerating certain costs may help you over the hump.
"And it's better to be able to take itemized deductions every other year than not take them at all," adds Aaron. Pre-paying your January mortgage bill to get 13 months of interest may push you past the mark.
Look back, too, on your medical costs to see if you're approaching the deductible floor of 7.5% of adjusted gross income (10% if you're subject to the alternative minimum tax). If so, schedule elective procedures and other appointments.
|What we want Apple to unveil at WWDC|
|Millennials squeezed out of buying a home|
|7 traits the rich have in common|
|Big Data knows you're sick, tired and depressed|
|Your car is a giant computer - and it can be hacked|
Carlos Rodriguez is trying to rid himself of $15,000 in credit card debt, while paying his mortgage and saving for his son's college education.
Susan Carson and Laura DeLallo make $225,000 and have half a million in retirement savings, but their sprawling portfolios is proving hard to manage.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.69%||3.76%|
|15 yr fixed||2.80%||2.82%|
|30 yr refi||3.69%||3.76%|
|15 yr refi||2.83%||2.83%|
Today's featured rates: