What??? What do you mean it’s tax time? That’s not until January when my W2’s come in the mail, right?
My readers are very, very smart, but on this topic, if you were thinking the above, you’re in for a wonderful surprise.
Not as wonderful as a surprise flash mob at Walmart, but still, pretty awesome.
Tax season starts today. Happy tax season! I know. And you forgot to dress up for it.
Between today and the moment the ball drops in Times Square on 01/01/12 at 12:00 a.m. is the only time you have to make changes to your tax situation. Sadly, most people begin planning for taxes when there is absolutely nothing you can do to create more tax opportunities.
Well, you’re in luck.
I’m going to bequeath unto you some tax-saving ideas you can easily implement over the next 60 days.
It could save you $725 or more. Cool? Let’s begin.
Remember, it’s about execution – not strategy. You have actually DO something…(I know, I know….I’m a task-master).
Strategy #1 – The easiest way to chop $600 off your tax bill
If you have any investments outside your retirement plan, you’ve seen their values rollercoaster over the last few weeks/months as the market’s been pretty range-bound. If you have a stock or fund you like, but it’s performance leaves a bit to be desired, consider selling it. Wait 31 days and then buy it back. If you have a loss, (up to $3,000 per year) you can claim it on your taxes (first against gains, then you can just use it as a deduction).
Neat, huh? I love saving money.
If you’re not sure how this works, here’s an example from your favorite blogger:
You bought 500 shares of Ford stock (ticker: F) at about $20/share earlier this year. That means you invested about $10,000 (I’m crazy about math!). Today, Ford is trading around $11/share.
You believe in the company so you still want to own it long-term. Fine.
Here’s what you do:
Sell your 500 shares today @ $11/share. You just realized a $4,500 loss for tax purposes. In 31 days, you’ll buy it back. In the meantime, so you don’t miss out on a potential run-up on Ford shares while you’re out, go buy CARZ, an Exchange Traded Fund that focuses on the auto industry. When the 31 days are up, sell CARZ and re-buy F.
Congrats. You just saved yourself ~$600 on your taxes (assuming you pay around 25% tax rate).
Strategy #2 – The most-used deduction plus an extra 8%
On average, the most used tax-deduction is the mortgage interest deduction. So, how about getting another 8%?
When’s your mortgage payment due? If you’re like me, it’s due on the first of the month. If you use automatic payments, this bill is probably deducted from your checking account each month on the first.
Call your mortgage company and cancel the automatic deduction.
Instead, go online on 12/31/2011 and make your 01/01/2012 payment. Check with your mortgage servicer to make sure it doesn’t need to arrive even earlier to post by 12/31/11.
Here’s what this five minute exercise created:
Let’s assume your payment is $1,000/mo of which $500 is interest (the deductible part). Under a normal year, you would have $6,000 of mortgage interest to write off ($500 x 12 mo – $6,000). By making your January payment early, you added another $500 interest payment. So now you have $6,500 (or 8% more than $6,000) worth of deductions. Again, assuming you’re paying around 25% taxes, you just saved another $125 in taxes due.
So, all-in-all, Average Joe just made you $725.
You’re welcome. Don’t go wasting it on doughnuts.
Have a favorite tax-time tip to share? Comments are open for our tax-time show-and-tell below!