While it’s been a difficult year for most, one person is certain to get paid this April—Uncle Sam. Tax time doesn’t take a skipping even during a recession. Here are some tips for 2009 tax time.
Because many IRA values have decreased significantly in the past year, you might consider converting your traditional IRA to a Roth IRA. According to Craig Spears, a CPA with Stuedle, Spears and Franke, “While taxes are due at conversion, you’ll pay the tax while the stock market is lower,” he explains. “As the stock market hopefully recovers in future years, your total tax burden will be lighter.”
You may want to discuss a conversion with your tax advisor if you’re married and filing jointly and have an income of less than $100,000, anticipate a higher tax bracket in retirement, expect income taxes to rise, or plan to leave your IRA as an inheritance.
Dig deeper for deductions
Most people are aware of the “biggies” in deductions such as interest on your mortgage and student loans, and charitable contributions. But if you are self-employed, other deductible items may offer relief. These include unreimbursed mileage, cell phone and Internet expenses, home office use, advertising, legal and accounting fees, professional seminars, publications or books, parking fees, and professional dues and licenses.
Save money, save taxes
As an incentive to encourage Americans to save for retirement, the IRS offers deductions for retirement contributions, which can lower your taxable income. And it’s not too late to contribute for 2008 in 2009. You have until April 15 to contribute up to $5,000 (plus an additional $1,000 if you are age 50 or older) to your IRA.
IRS RED FLAGS
Be on guard. According to Sara Gould, CPA at Deming, Malone, Livesay and Ostroff, here are three IRS no-nos that might prompt an unwanted audit:
- Doesn’t add up: “What you provide to the IRS and what a third party provides better match up,” says Gould. “If not, the system will generate a notice that might prompt an audit.”
- Abnormal deductions: Excessive deductions in relation to your income will trigger a question mark with the IRS that Gould says, “Isn’t worth it.”
- Child deductions: Divorced families should be aware and decide who will claim the child as a dependent and take the appropriate deductions and credits.