Just days left for some tax breaks

Published 8:54 pm Tuesday, December 28, 2010

With only a few days left until the end of the year, financially savvy Suffolk residents are thinking about the last-minute steps they can take to improve the numbers on their tax forms.

Taxes made big headlines this month, with a lame-duck Congress voting to extend tax cuts for most Americans. Here in Suffolk, there are a few easy steps folks can take to maximize their deductions, based on their own unique situations and advice from their accountant or tax expert.

One of the biggest tax topics this year is Roth IRA conversions, said Christopher Robinson, a certified public accountant based in Suffolk.

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“One of the things that is real big this year is doing the Roth conversions,” Robinson said. “There used to be an income limitation. Now, that income limitation doesn’t apply for 2010.”

Previously, taxpayers with an adjusted gross income of more than $100,000 were not eligible to convert a traditional IRA (individual retirement account) into a Roth IRA. Now, however, they’re able to do that.

“As well, you have the ability to determine when you’re going to pay the tax liability for that conversion,” Robinson said.

Taxpayers who make the conversion can choose to pay the federal income tax on the conversion income immediately or spread the liability over two years.

Another easy way to find a deduction in your tax papers is to give money away, Robinson said.

“A lot of people want to make gifts to family members,” Robinson said. “You can go ahead and do that now for the end of the year.”

Up to $13,000 given to any one person is not taxable, Robinson said. For people who already were planning to make a monetary gift to a family member or friend, doing it before the end of the year can be a smart move.

Those who have retirement accounts like IRAs or 401(k)s also can maximize their deductions by maximizing contributions to their accounts. For IRAs, the maximum contribution per year is $5,000 if you’re age 50 or younger, or $6,000 if you’re older than 50 and meet other qualifications.

The maximum contribution for a 401(k) plan in 2010 is $16,500. For individuals over 50, a “catch-up” contribution of an additional $5,500 can be made.

Business owners also can take steps in the next few days to improve their situation, Robinson said.

“For people that are buying new equipment before Jan. 1, they have the ability to deduct it all in the year of the purchase,” Robinson said.

In addition, billing customers for products or services before the end of the year can result in an improved tax situation.

For those who pay for over-the-counter medications with a flexible spending account or similar health account, Robinson recommends to stock up. Next year, you need a prescription to buy them from any tax-free health account.

Other tax tips from the National Society of Accountants include:

Beware of limits on itemized deductions — the limit on itemized deductions reappears in 2011.

Take advantage of lower capital gains rates.

If you’ve made any energy-efficient improvements to your home in 2010, check to see if the improvement qualifies for a deduction.