The Curmudgeon’s Guide to Year End Tax Tips for Real People

Happy New Year Flag 2012

Photo by Deborah Malec on flickr.com

If you Google “year end tax tips” you’ll get over 4 million entries. Granted, I’ve littered the field with a few of my own blog posts as well, but to be perfectly honest, most of those “tips” you find on the internet are pretty worthless to a “normal” taxpayer. I’m talking about regular people with W-2 type income or retirement money.

Now, forgive me if I sound a little cranky, but if you’ve waited until after Christmas to do any kind of tax planning, well, you’re a little late. Consider yourself scolded. And when you file your 2011 tax return, you’re going to plan ahead for 2012 like the intelligent person that you truly are. (I mean come on, you are reading my blog right? Obviously you’re attractive too!)

In the meantime, these are the top five last minute tax tips for non-business owners offered by the IRS. Note that the strategies are offered by the IRS, the commentary is from me. It’s not that the IRS suggestions are bad—they’re good suggestions, you just need to look with your eyes open.

  1. Charitable contributions – I love charities, I want you to donate to charity, but as a tax strategy, this might totally suck. If you are not already claiming itemized deductions on your tax return, then donating to charity probably will not help your taxes. Every year – seriously, every single year that I have prepared tax returns – I meet someone who donated to charity thinking it was a tax deduction and got nothing from it. The absolute worst case was a guy who donated his car, thinking he’d get everything back on his tax return. Wrong! He got nothing. Zero, zip, zilch, nada. (Although I understand that the woman at the charity who talked him into it was really pretty, although he didn’t get a date out of it either.) Donating to charity is a very good thing, but use your brain when donating. http://robergtaxsolutions.com/2011/12/charitable-donations-how-much-should-you-tithe-why-do-it/
  2. Energy efficient home improvements — The first thing you need to know is that the maximum credit you can get for this in 2011 is $500. If you’re doing the work anyway, great, but I wouldn’t go out of my way now to try for a tax credit this late in the game. http://robergtaxsolutions.com/2011/11/what-you-need-to-know-about-the-2011-home-energy-tax-credit/
  3. Portfolio adjustment — This is where you call your financial advisor and see if you need to do any tweaking before the end of the year. With the stock market being kind of crazy, you could have big gains or big loses. But don’t just go selling off stock, it’s important that you make sound financial decisions. I often have clients tell me that they sold losing stocks and they should be able to claim huge losses on their returns. Problem is, there may have been a huge loss during the year, but they’ll have a huge gain because they’ve held the stock for several years. Having your tax and financial person coordinate together is your best strategy. http://robergtaxsolutions.com/2011/08/five-tax-issues-for-these-crazy-financial-times/
  4. Max out 401(k) contributions — For the vast majority of us, we set up our 401(k) last November and can’t change anything. Personally, I’ve never worked for a company where you could walk into the HR department and say, “Hey, I want an extra $3,000 plopped into my 401(k) this week.” For those of you who are able to make last minute adjustments, you’ve got about 3 days. Anything going into your 401(k) must be in by December 31. http://robergtaxsolutions.com/2011/11/how-much-can-i-contribute-to-my-401k/
  5. Qualified charitable contributions seniors — This is for seniors who must make required minimum distributions (RMD). If you’re one of those people who takes your RMD at the very last minute, you can have your RMD go to a charity instead. This makes your RMD not taxable to you, and you don’t need to itemize to make it work. If you’re a senior and you do not need your RMD, and you have a charity that you really like, this is a perfect way to deal with it. http://robergtaxsolutions.com/2010/12/last-minute-tax-tips-for-seniors-ira-charitable-rollover/

Okay here’s the preachy part, I’m giving you fair warning. If you plan ahead, you don’t have to worry about last minute tax strategies. You’ve already figured out your best 401(k) contribution, you’d have already sent your qualified charitable contribution, and you’d have already spoken with your financial advisor about what your best strategy for the year is. It says this on my business cards, but it’s true—if you don’t have a tax strategy, then you’re probably paying too much. You don’t have to be rich and you don’t have to be a business owner to benefit from a little planning ahead. If your tax person isn’t helping you plan ahead for next year, it’s time for a new tax person.