Before 2011 comes to a close, are there any last-minute financial moves you can make to reduce your federal income taxes?
For homeowners and renters alike, the answer is a resounding yes, tax experts say.
Here are five ways you can leverage your home or apartment before New Year's Day to lessen your tax bite when you file your taxes in 2012.
1. Prepay property taxes
Homeowners often receive quarterly or semi-annual property tax bills from the municipality, town or city in which they reside. If you typically pay your property taxes at the beginning of the year, instead consider making that payment in December, a few weeks early.
The goal is to use a strategy that accountants call "accelerating your deductions." Using this technique gives you the benefit of writing off on your 2011 tax return property taxes actually due in 2012.
And property taxes aren't the only deduction for which this strategy works. If you're really flush with cash, pay your quarterly, state or local income taxes too.
"These must be paid by December 31 to obtain a deduction this year," says Gregory Lauray, head of Gregory K. Lauray & Co. P.A. in Bethlehem, Pa.
2. Make an extra mortgage payment
You can also pay your January 2012 mortgage payment ahead of time. Alternatively, you can simply make an extra payment on your mortgage in December 2011.
Either way, you're able to claim the additional mortgage interest paid on your 2011 taxes. Just be sure to write that check to your mortgage lender and mail it on or before the last day of the year.
3. Do year-end home improvements or upgrades
You can also save money at tax time by completing certain upgrades that make your home more energy-efficient--but only if you do so before ringing in the new year.
For example, you can get an Energy Star tax credit of up to $200 for installing energy-efficient windows. You can also get a tax credit for installing a water heater-including certain types of electric, natural gas, propane or oil models-up to a maximum of $300.
The same maximum ($300) applies to air conditioners. And other home improvements, such as replacing or installing doors, insulation and roofs, will net you an even bigger tax break; those improvements qualify for a tax credit up to $500, according to Lauray.
A furnace tax credit (which includes hot water, natural gas, oil or propane) is capped at just $150. But it's still worth pursuing because all these tax credits can add up to lower the amount you owe Uncle Sam.
4. Use a home-based business
Regardless of whether you own or rent, if you have a home-based business, you can claim a home office tax deduction for the portion of your residence that you use exclusively and regularly for work.
Under IRS guidelines, some of the expenses you can write off for the business use of your home include
- A security system
- Rent paid for the use of property you do not own but use in your trade or business
- Depreciation of your home
5. Donate household goods and furniture
Finally, there's one other way in which your home or apartment may help net you a nice tax break.
Elaine Smith, a master tax advisor and enrolled agent at H&R Block in Kansas City, Mo., notes that most of us tend to collect a lot of stuff in our properties. Rather than let household goods, furniture and other items simply collect dust, give them to charity.
"Go through your entire house and donate everything that you don't want," need or use, suggests Smith. "Then make sure you get a receipt from the charity or nonprofit," she says, adding that far too many people simply leave household items at a donation bin or curbside and don't bother to get a receipt.
Items donated from your home may have far more value than you think-especially if you find out the correct deduction amount allowed by the IRS for various goods, and don't simply throw items in a bag or box and assign a random value to them.
H&R Block has software called Deduction Pro that will assess the accurate value of donated items for you. The Salvation Army also has a Value Guide for charitable contributions. Even "eBay is a good source to get a fair market value for unique items," says Smith.
"People are generally surprised at the value," and the resulting tax benefit they get from donations, Smith notes. "They often say it ends up being much bigger than they expected."
The original article can be found at HSH.com:
5 ways your home can slash your tax bill before year-end