Staying ahead of the latest tax changes may seem like an impossible task. But it is possible -- and if you don't keep up to date on new tax rules, then you could miss out on thousands of dollars in potential savings.
If you're like most people, you've probably been tossing all the tax forms you've gotten in the mail recently into a corner somewhere, especially since you still have two full months before you have to file. Unfortunately, the best time to do your tax planning isn't at 11 pm on April 15. Ideally, now's the time to think about your taxes for next year -- and what steps you'll take to shrink your tax bill as much as you can. Here are some tips to do exactly that.
1. Don't buy a home without it.
Most people have heard of the First Time Homebuyer Credit. Seen as largely responsible for trimming some of the losses that homebuilders like Toll Brothers
Until last year, you had to qualify as a "first-time homebuyer," which means that you can't have owned a primary residence during the past three years. However, Congress changed the rules to add a credit of up to $6,500 for current homeowners who've lived in their homes for five straight years at some point between 2002 and now.
Currently, the credit is slated to expire on April 30, with a two-month extension available if you sign a contract by the end of April. So, if you're thinking about buying a home, you may want to move quickly. In fact, even if you buy a home in 2010, you can use the credit to offset your 2009 taxes -- a nice way to save.
2. Bigger breaks for college.
Anyone with a child in college should be familiar with the Hope Credit, which gave students or parents a credit during the first two years of college. Now, though, the revamped American Opportunity Credit has expanded those credits from two years to four, allowing you to take up to $2,500 off your taxes each year.
The credit is just one of many tax provisions that offer families tax savings on education expenses. Different income restrictions apply to different credits and deductions, though, so you'll want to take a close look to make sure you pick the best one for you.
3. A time warp for donations.
The Haitian disaster has motivated many people to give generously. Not only have millions of individuals made gifts, but companies like Procter & Gamble
In an unusual move, you'll have the choice to include your donations as deductions on your 2009 return, even if you made them in 2010. Usually, there's no way to turn back the clock on donations. But the timing of the disaster coming so close to the beginning of the year -- and so soon after many people had already completed their charitable giving -- likely motivated the move. To take advantage, make your gifts by the end of February.
4. Act now or you'll miss out.
Unfortunately, some popular tax breaks expired at the end of 2009. For instance, one deduction allowed car buyers to write off the state sales tax they paid when buying a car. Combined with other temporary breaks like the Cash for Clunkers program, those provisions played a major role in pushing car sales up for successful automakers like Ford Motor
Other credits, though, have been extended. You can still earn a credit of up to $1,500 for improving your home's energy efficiency, for example, until the end of 2010. The credit includes a variety of measures, ranging from adding insulation to installing new air conditioners or furnaces. Whenever you see a credit, make sure you know when it will expire so you don't miss out.
It's never too early to start thinking about tax planning. The sooner you think about your taxes, the more likely you'll be to find money-saving moves -- and to make the most of them.
If you haven't checked out The Motley Fool's Tax Center, don't wait until April to take a look. You'll find ideas that could save you thousands.