“If we could somehow harness this lightning…channel it into the flux capacitor...it just might work. Next Saturday night, we're sending you back to the future!”
Dr. Emmett “Doc” Brown, “Back to the Future”
I frequently quote an expression on the importance of taking action during the calendar year in order to enjoy all the tax benefits to which you are entitled. The saying goes like this: The difference between tax planning and tax preparation is December 31st.
In other words, if you don’t act by December 31st, it is then too late to plan for the future, and the only thing left to do is prepare your taxes, for better or worse (usually worse!), and pay the price for your delay.
Turns out, though, that my favorite tax preparer joke isn’t one hundred percent true. There actually are a couple of tax benefits that can be claimed on your 2009 return, even if you don’t act on them until well into 2010.
It’s like bending the space-time continuum. Michael J. Fox, look out!
1. First Time Homebuyer Credit – Originally passed by Congress in 2008, this lucrative credit was recently extended to purchases thru April 30, 2010 and is deductible on either 2009 or 2010 returns.
The enhanced credit is worth 10% of the purchase price of a new home, up to $8,000. Qualified homebuyers (and there are multiple restrictions) must buy between February 1, 2009 and April 30, 2010 (contracts can close as late as June 30, 2010).
It also now extends to long-time homeowners buying a replacement principle residence, and raises the income limitations to make taxpayers with as much as $95,000 of adjusted gross income ($170,000 for married taxpayers filing jointly) eligible for the credit.
If you made or plan to make a home purchase within the prescribed time limits, check with me to learn if you are eligible.
2. IRA Deduction – Under a longstanding IRS rule, you can contribute as much as $6,000 to an IRA in the current year and deduct it on the prior year return, as long as you do so before the filing deadline. In effect, this makes it possible to file as late as April 15, 2010 and fund your IRA with the refund from your 2009 return.
It even extends to SIMPLE and SEP plans, which are specialized IRAs designed for self-employed individuals and their employees. Better yet, married taxpayers can each claim the deduction, which means a husband and wife can put away as much as $12,000 if they are both over age 50.
Only taxpayers who are not covered by a 401(k) or other qualified retirement plan at work are eligible to contribute to an IRA, and only traditional IRAs are eligible for this special treatment (Roth IRAs are funded with after-tax dollars and do not qualify for a tax deduction at the time contributions are made; instead, earnings grow tax-free, and qualified withdrawals are tax exempt).
Despite their statutory limitations, both of these tax benefits have the almost supernatural capacity to extend beyond the 2009 calendar year, and can provide tax savings for some who might otherwise think they snoozed away their opportunity when 2010 rolled around.
As Marty McFly would say, "Whoa, this is heavy."
"There's that word again; "heavy". Why are things so heavy in the future? Is there a problem with the earth's gravitational pull?"
Dr. Emmett "Doc" Brown, "Back to the Future"