It seems like every year there’s a slew of tax breaks in danger of expiring. Sometimes Congress extends the tax break, other times they actually expire and fall by the wayside. 2011 is no different, with 3 potentially useful tax breaks on the cutting room table. Those who may be able to benefit from these tax breaks should consider taking advantage of them soon, before it’s too late.
- Sales Tax Deduction – Individuals who itemize their deductions can elect to deduct their sales tax or their state and local income taxes, whichever is greater. There are seven states without a state income tax, so those residents would surely elect the sales tax deduction. Residents of other states may find that they paid very little in state income taxes and may decide to elect the sales tax deduction instead. For those who are taking the sales tax deduction and considering a large purchase, such as a new car, it may be worthwhile to complete the purchase this year in order to maximize this tax benefit while it’s still available.
- Energy Efficiency Credit – Individuals can take a credit of up to $500 for making energy efficient improvements to their homes, including upgrades for roofs, doors, insulation, windows, furnaces, air conditioners, and many others. There are limitations on the amount of eligible credit for the various improvements, and you can find a list of those here. It’s also important to note that unlike many other credits, this one is a lifetime credit–so if you’ve utilized all of the $500 credit in the past, you cannot take any more regardless of your qualified expenditures now. However, if you haven’t benefited from this tax break yet, and are considering making energy efficient improvements to your home, you may want to do so before year end.
- Qualified Charitable Distributions from IRAs – Individuals older than 70 ½ can make tax-free distributions from their IRA to qualified charities. The distribution is not includable in the donor’s income, but it is not deductible as a charitable donation either. This provision primarily benefits individuals who are charitably inclined but don’t have enough deductions to itemize. The qualified charitable distributions will count towards an individual’s required minimum distribution (RMD) for the year, allowing those who don’t need the money from their IRA to donate it without being taxed on it. With year-end fast approaching, individuals who have yet to take their RMD may want to consider this option.
Each of the tax breaks above had been due to expire at some point in the past but was subsequently extended at the last minute. It is possible that Congress will extend these breaks again, but nothing is certain given the deficit and debt problems currently facing our country.
If you think you may benefit from any of these tax breaks, please be sure to consult with your accountant to see how these tax savings may apply to your specific situation.