With only seven weeks left in the year, it's certainly time to think about year-end tax planning!
If you're considering buying a new car, you'll want to do it before December 31 in order to take advantage of a special sales tax deduction on up to $49,500 of the cost of a new vehicle bought before 2010. If you don't itemize, you can add the sales tax on to your standard deduction.
On the other hand, if you're planning to convert a traditional IRA to a Roth, you may want to wait until next year as the tax on 2010 conversions can be spread out over two years instead of one. 2010 is also the year that the ban on IRA conversions by high-income earners disappears. Taxpayers in the highest tax bracket, however, may want to pay all the tax on conversion in 2010 as many are predicting that the top income tax rate will jump from 35% to 39.6% in 2011.
Most investors suffered big losses last year, a portion of which may have carried over into 2009. If you fit into that category and you now have appreciated stock that you would like to sell, consider doing it before year end in order to take advantage of the opportunity to offset your gain on the sale against your loss carryover.
Some analysts are warning that an inordinate number of Americans may be facing underpayment income tax penalties in April. Now is the time to assess how much tax you are having taken out of your paycheck and to adjust your withholding for December as necessary. As long as you prepay 90% of the year's tax bill, you will avoid any underpayment penalty.
If charitable giving is part of your year-end routine, please remember that your checks to charitable organizations must be postmarked by December 31 in order for the gifts to be deductible this year. Gift checks to individuals, on the other hand, must be cashed by the 31st.