Five Savings Strategies for 2010:
1. Take stock of your home office. If part of your home is designated solely for business, you may be eligible to claim a tax deduction for some of your expenses. Be careful what you claim, however. The part of your home that you are claiming must be the principal place of business and must be used for that sole purpose. To determine what you can and cannot deduct, explore the Home Office Deduction calculator on Toolkit.com.
2. Think about retirement. If you're looking to minimize your taxes for 2010, you may consider maximizing your retirement account contributions. Contributing to a 401 (k) or IRA can reduce your 2010 taxable income. Contributing can also spare you from paying taxes on that money until you retire and deduct from that account. Alternatively, you can save for the future by putting money for retirement in a Roth account. Using a Roth means that you won't be able to get an immediate tax break, but it typically allows money in your account to grow tax-free.
3. Accelerate your income. The largest tax hike in American history is scheduled for 2011, and it will affect every taxpayer--unless Congress acts before the end of the year. Income taxes and numerous credits and deductions, capital gains taxes, dividend taxes, and even estate taxes are all scheduled to increase, barring one more major piece of legislation from Washington DC in 2010. For example, if legislation is not passed and you are currently in the highest tax bracket of 35 percent, this bracket will increase to 39.6 percent if the tax cuts expire. This means it would benefit you to move income into the current year when it will be taxed at a lower rate. If you are self-employed, you have somewhat more flexibility over when you receive income than other workers do. As the year comes to a close, make sure you bill your customers and clients promptly and follow-up on past due accounts. If you are negotiating for new business or a new project, attempt to receive payment in advance.
4. Invest in stock. If you purchase capital gains stock between September 27, 2010, and the end of the year, you can exempt all of that stock from your taxes. Making the decision to purchase stock can be useful as a personal or business investment, offering you maximum benefits when you take action before the end of the year.
5. Consider incorporation. Incorporating has many benefits, and depending on your situation, may have certain tax advantages. Once your business is incorporated, business costs such as medical expenses, entertainment expenses and vehicle costs may be tax deductible. Incorporation also typically keeps your personal assets, like a home, vehicle and savings, separate from your business.
"Incorporating your business can help put you in charge of your financial future," says Karen Kobelski, general manager of BizFilings. "There are tax benefits that are often available to incorporated businesses, and more importantly, incorporation gives businesses a layer of protection and limits personal liability."
