It's that time of year again -- 1099 forms are filling our mailboxes, and the annual April 15 deadline for filing our tax returns has begun to loom. If you're dreading the thought of another 1040, take heart, Fools. These three handy tips could help make your yearly encounter with the IRS a lot more pleasant.
1. Pay now or really, really pay later
Even if you can't pay all your taxes right now, you still need to prepare and file your return. Pay what you can now, and send the rest in later. Otherwise, you'll face penalties and accrued interest -- and the fines for failing to file are much larger than those for failing to pay.
2. A capital (gains) idea
When you sell stock, you may be able to partly control the size of your taxable capital gain. If you bought shares of the stock over a period of time, at different prices, and you sold only some of the shares this past year, you can "specify" which shares you sold.
For instance, say you bought 100 shares of Sisyphus Transport (Ticker: UPDWN) at $40 per share, and 50 more later at $60 per share. Then you decide to sell 50 shares at $80 per share. You can choose to realize a gain of $40 per share (if you sold the shares you first bought), or $20 per share (if you specify that you sold the shares most recently purchased). Remember to deduct the cost of brokerage commissions from your capital gains, too.
3. The IRA escape
It's not too late to lower your taxable income this year, if you haven't yet contributed to an IRA. Those who qualify can contribute as much as $5,000 by April 15 for the 2009 tax year. For those 50 and older, the limit rises to $6,000.
Of course, only deductible contributions to traditional IRAs reduce your income. Also, you may be better off with a Roth IRA, which accepts only post-tax money, but lets you eventually withdraw those funds -- and their proceeds -- tax-free.
You can do particularly well by parking your dividend payers in IRAs, thus shielding them from the taxes you'd otherwise face for their payouts. Check out the possible savings below:
|
Stock |
Current Dividend Yield |
Annual Tax Savings* on $5,000 Investment |
|---|---|---|
|
sanofi-aventis |
3.9% |
$29 |
|
NYSE Euronext |
5.1% |
$38 |
|
Eli Lilly |
5.6% |
$42 |
|
AT&T |
6.6% |
$50 |
|
New York Community Bancorp |
6.6% |
$50 |
|
Hudson City Bancorp |
4.5% |
$34 |
*Assumes 15% maximum rate on qualified dividends.
Remember, you're earning those savings each and every year by keeping those stocks in an IRA. Moreover, a Roth IRA can be a particularly great place to park the stocks from which you expect the greatest performance. If they soar, you won't pay a penny in tax on any of their gains.
Now that you've read our tax tips, why not take a minute to share your own? Leave a comment below about the tax tip that either surprised you the most, or saved you the most.
