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End of the Year 2010 Tax Planning

The end of the year is fast approaching and smart folks are already planning their end of the year tax moves to save every penny possible. Here are a few ways to save money on taxes:

  • Sell appreciated assets: With the huge government deficit, tax rates are going nowhere but up. If you have any assets such as property, stocks or anything of value that is gone up, take advantage now and sell to pay a lower tax rate.
  • Max-out Retirement Contribution: Whether you are contributing to your Roth IRA, SEP-IRA, 401k, Roth 401k, take advantage of maxing out the contribution. The deadline is actually April 15th, 2011, but most people tend to forget and are not able to max out their contributions.
  • Convert Traditional IRA to Roth IRA: The IRS has removed the $100,000 limit on people eligible to convert to a Roth IRA for tax year 2010. You will need to pay taxes on the amount, but the huge benefit for Roth IRA holders is that when you take money out, there will be NO TAXES on the gains. Imagine in 20 years, unless the world ends, your Roth IRA should be worth at least twice what it is today.
  • Defer Income/Advance Deductions: If you think you will be making the same or less money next year, try to defer any income to 2011 and advance any tax income deductions to 2010. However, if you feel that 2010 was a pretty bad year as far as income, don’t defer income. Pay taxes on the income at a lower tax bracket rather than tacking it onto next year where you think you may earn a significant amount more money.

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