Make moves now to lower next year's tax bill
The past few years have been fraught with so much uncertainty about income tax rates, estate taxes and expiring deductions that planning wasn't easy. A year ago, for instance, Congress waited so long to act on expiring tax breaks that the IRS couldn't update all its systems in time for the start of the tax season. Millions of taxpayers had to wait until February to get their returns processed.
"It was a tumultuous year, as many of them seem to be," says Mark Steber, chief tax officer with Jackson Hewitt Tax Service.
But — cross your fingers — there isn't any legislation on the horizon that's expected to gum up tax strategizing this year.
Even so, you can't assume your return will be similar to the last one you filed, Steber says, especially if you underwent a major life change. You should review deductions and credits to see if you might qualify for them now even if you didn't before.
For example, if you lost your job or found a new one paying much less, Steber says, your income might be low enough that you're eligible for certain deductions.
Here are some tax moves to consider before the end of the year.
Roth conversions( Getty Images / September 8, 2010 )
Many people took advantage last year of a change in the law that allowed high-income workers to convert a traditional IRA to a Roth IRA, which permits tax-free withdrawals in retirement. A conversion, though, triggers a tax bill on the amount being converted.For conversions done last year only, taxpayers had the option of splitting the tax bill over their 2011 and 2012 returns.
This will be the first year they have to pay the tax on that, says Bob Meighan, vice president of TurboTax. Make sure you are aware of it and have the money available when it becomes due.