It’s hard to believe that we are almost at the end of 2010. With that in mind, let’s look at some ideas to help you save tax dollars for 2010 and 2011.
Valerie RumboughIf your employer offers a health flexible spending account (FSA), be sure to set aside your estimated out-of-pocket health costs, to take advantage of pre-tax reimbursements. Remember, though, that, starting in 2011, you can no longer use your FSA to get reimbursed for over-the-counter drugs, such as aspirin and cold remedies. Only insulin is eligible for reimbursement. If you find that you cannot use all of your funds set aside in 2011, you actually have until March 15 of 2012 to use it up.
Do you have an IRA? Convert your traditional IRA into a Roth IRA if doing so is expected to produce better long-term tax results for you and your beneficiaries. Distributions from a Roth IRA can be tax-free, but the conversion will increase your adjusted gross income for 2010. However, if you do it this year, you will have the choice of when to pay the tax on the conversion. You can either (1) pay the tax on the conversion when you file your 2010 return in 2011, or (2) pay half the tax on the conversion when you file your 2011 return in 2012, and the other half when you file your 2012 return in 2013.
Does your home need a makeover? If you make energy-saving improvements, such as putting in extra insulation, installing energy-saving windows or buying and installing an energy-efficient furnace, you may qualify for a 30 percent tax credit. The total (aggregate) credit for energy-efficient improvements to the home in 2009 and 2010 is $1,500. Unless Congress acts, this tax break won’t be around after this year. Additionally, substantial tax credits are available for installing energy-generating equipment (such as solar electric panels or solar hot water heaters) to your home (this break stays on the books through 2016). Before you purchase these items, be sure they qualify for the tax credit. You can find out from the seller. Happy saving!
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.