Ten Year-End Tax Moves for 2010

With the end of 2010 just around the corner, I wanted to take a few minutes to point out some tax-related issues that you should consider tackling before the end of the year. While you might want to think about money during the holidays, you can save a nice chunk of change by making a few year-end moves.

Year-end tax moves to consider

1. For starters, don’t forget that charitable contributions made up to (and including) December 31st can be deducted on your 2010 income taxes. My wife and I traditionally do the bulk of our giving during the week after Christmas.

2. You might also want to consider cleaning out some closets and donating household items to charity. Here again, you can claim a 2010 tax deduction as long as you get this done by December 31st and have the proper documentation.

3. Consider doing a bit of tax loss harvesting. That is, selling losing investments to book the loss and offset any capital gains liabilities that you might have. If you don’t have enough capital gains to offset with your loss, you can offset up to $3k of ordinary income per year, and the excess losses carry forward to future year.

4. Related to the above, consider donating appreciated assets instead of cash. Simply donate investments that have gone up in value and then re-buy them with the cash you would have donated. This gets you an income tax deduction for the contribution and resets your cost basis, which saves capital gains taxes down the road.

5. Convert your traditional IRA to a Roth IRA. As I’ve talked about extensively, the income limits for Roth IRA conversions went away in 2010, so anyone can do this. And by doing it in 2010, you postpone the tax bite until 2011 and 2012.

6. If you own a small business, consider making any looming business-related purchases before the end of the year. You might even consider pre-paying for services that you’ll need in 2011, such as tax preparation.

7. Spend out your flexible spending account (FSA). While some employers provide a grace period after the New Year, others don’t. Just be sure you know the rules and get your balance down to zero so you don’t forfeit any money.

8. Take advantage of the tax credit for energy efficient home improvements. I realize that we only have about a week remaining, but this tax credit (up to $1500) expires at the end of the year, so it’s now or never.

9. Save for college. Many states offer income tax deductions on 529 plan contributions. In some cases, you can contribute up until the tax filing deadline and still claim the deduction, but you only have until 12/31 to make the contribution and have it count against your 2010 gift tax exclusion.

10. Finally… Consider dying. Hah. Just kidding. But if you do happen to die before the end of 2010, there will be no estate taxes due, no matter how rich you are.