Last-Minute Moves to Cut Your Taxes
Most taxpayers do not enjoy the painstaking process of filing tax returns, but tax deductions and credits can result in significant refunds from the Internal Revenue Service. Even as the end of a tax year approaches, there are several last-minute ways to take advantage of deductions that can result in big savings when you file your tax return.
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Contribute to an IRA
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An individual retirement account (IRA) is a type of financial account that individuals can open themselves and take a tax deduction on the contributions. An IRA does not need to be offered through an employer like a 401k plan is. The maximum amount you can deposit to an IRA is $5,000 or $6,000 if you are age 50 or older, and contributions may be made for 2010 returns up until the tax-due date of April 18, 2011. If you have extra money available, depositing it in an IRA can save you more than $1,000 on your taxes.
Donate to Charity
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Charitable donations given to organizations like churches, the World Wildlife Fund, the Red Cross and the Salvation Army qualify as tax deductions. In addition, deductions are not limited to cash donations: Donations of property also apply. Giving away old clothing, furniture and other personal property before the end of the year can grant you a tax deduction equal to the market value of the items given. Keep detailed records of all property and cash donations so you can account for them when you file your tax return.
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Contribute to Tax-Advantaged Health Plans
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Flexible spending accounts (FSAs) and health savings accounts (HSAs) are two common types of tax-advantaged health care accounts. Both types of accounts allow you to contribute money toward medical expenses on a pretax basis. Money you put into an FSA must be used by the end of the year or you forfeit the funds, while contributions to HSAs remain until you withdraw the money.
Other Sources of Last Minute Tax Savings
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If you are planning on getting married at the beginning of a year, getting married before the end of the year will allow you and your spouse to file a joint return, which can result in significant tax savings. You may also save money if you contribute toward a child's education. If you pay for a child's 2011 spring semester educational expenses during the first three months of 2011, you may be eligible for a credit of up to $2,500.
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