Tax Breaks

“I'm proud of paying taxes. The only thing is--I could be just as proud for half the money.” - Arthur Godfrey

CNNMoney.com has some ideas for lowering the federal taxes you owe. But you must act before Dec 31 to take advantage of these tax incentives:

· New-car sales tax deduction: you can deduct the state and local taxes you paid for a new car purchased between Feb 17 and Dec 31 up to a vehicle price of $49,500 and if you earned less than $125,000 single or $250,000 as a couple.

· “First-time” homebuyers: there is a credit for anyone buying a new house who has not owned a house in three years.

· Green Appliance rebates: see energystar.gov (click on Tax Credits for Energy Efficiency)

· Use your stock market losses: if you sell a deadbeat stock with a loss, you can subtract that loss from profits made on other stocks sold. If you have more losses than gains, you can deduct up to $3000 from ordinary income. For losses to count you cannot buy a new “substantially identical” stock within 30 days of the sale.

· Watch out for the AMT penalty. See the article for details.

· Deduct any gifts you give to charity: this is the last year you can do a direct rollover from an IRA to a tax-exempt organization.

Bottom Line

Be careful with any financial advice. The tax law is full of holes and tricks and it’s easy to make a mistake. See a professional.

We got burned once with bad advice from our estate lawyer. He suggested cashing in the IRA of my wife’s deceased mother over two years to minimize the financial impact on our tax bracket. However he overlooked that there is a one-time partial IRA exemption that is not taxed with an inheritance. By splitting the IRA in two we did not get the full benefit of the exemption and ended up paying more taxes.

Misc

I also liked an article at FiLife.com but there wasn’t enough there for a full post so I’ll tack it on here. How much money can you safely withdrawal from your retirement account without draining it dry before you die? The recommendation is 4.1% to 4.6% annually. At a rate of 4.6%, in order to withdraw $50,000 in the first year, your retirement account needs to exceed $1.1 million dollars. Ouch!