10 Tax Deductions to Squeeze In Before 2012

The end of the 2011 is just around the corner, but there's still time to save on your taxes. Here is a compiled list of payments you can make this December to increase your 2011 tax refund or reduce your 2011 federal, and perhaps state, income tax liability.

A few things to keep in mind: You can use a bank credit card to buy deductible items in December and be able to deduct them on Schedule A. Also, the first seven items apply only if you will be itemizing deductions for 2011, so make sure you will be able to itemize before making any payments.


Cram in medical appointments
Time to cram in those trips to the doctor. The Internal Revenue Service lets you deduct your yearly medical costs as long as they exceed 7.5% of your 2011 adjustable gross income - a high percentage, but one you can meet by refilling your prescriptions, scheduling check-ups, eye exams and doctor visits, stocking up on deductible medical supplies and paying any outstanding medical bills this December. Also, don't forget to keep track of your round-trip mileage when driving to medical appointments.

Do you make direct monthly payments of health insurance premiums, or is your long-term care insurance up for renewal next month? A good tip is to make the January payment in December.


Make a state/local income tax payment
Are you making quarterly state estimated tax payments, deducting state and local income tax and not state and local sales tax? If so, make the fourth-quarter payment that is due Jan. 16 in December.

If you expect to have a balance due on your 2011 state income tax return, you can ask your employer to increase your state income tax withholding.

Buy a car now (and save the receipt)
If you make the decision to deduct state and local sales tax instead of state and local income tax, or if your state does not have an income tax and you were planning to buy a new car, truck or motorcycle in early 2012, make the purchase in December. In fact, you may actually save money on a year-end deal.

Many taxpayers do as I recommend and save all of their sales tax receipts during the year to see if it would be worthwhile to deduct actual state and local sales tax instead of using the Optional State and Local Sales Tax Table. If you will be deducting state and local sales tax, and the total tax from your accumulated bills will exceed the amount allowed in the table (you can use the Sales Tax Calculator tool on the IRS Web site), buy big-ticket items that are scheduled for purchase in early 2012 before the end of December.


Pay real estate taxes
In some states, real estate taxes are billed once a year, with perhaps separate billings for municipal, county and school taxes. In others, including my home state of New Jersey, the taxes are combined but you are billed quarterly. Make payments due early in 2012 before the end of December. In New Jersey, the first-quarter payment for the year is due Feb. 1, so I tell clients to send their check before Christmas.


Pay mortgage interest early
In most cases your monthly mortgage and/or home equity loan payments are due during the first week of the month. Make the January payment(s) before the end of the month and make sure the bank or mortgage company gets the payment in December so the additional interest payment will be reflected on your 2011 Form 1098.


Make some charitable donations
Doing well can be good for your wallet, too, since you can write off your charitable contributions. Add your favorite church and charities to your Christmas gift list and donate used clothes, books and household items to the Salvation Army, Goodwill or a similar organization. Just be sure you make a list of the items you are donating and get a receipt from each organization you give to.

Don't have the cash available to make the contribution? You can donate stock or mutual fund shares that have appreciated in value to a church and charity and claim a deduction for the fair market value of the investment on the date of the contribution. Keep in mind that you don't have to report the capital gain as income on your tax return, and be sure not to contribute an investment that is worth less than when you paid for it.


Buy some work essentials
Business owners aren't the only ones who can deduct work-related expenses - employees can, too, if the expenses exceed more than 2% of their adjusted gross income.
Buy uniforms (or have your existing uniforms dry-cleaned) and deductible work clothes, small tools and supplies now; attend a work-related conference, seminar or workshop; and renew subscriptions to job-related and investment publications that will expire early next year. If your annual safe-deposit box fee is due in January, pay it in December. Also, if you use tax software to prepare your returns (not that I recommend doing this), buy the updated package before year-end.


Prepay 2012 college tuition and fees
If you're paying for college tuition for yourself, your spouse or your dependent child, you may be eligible for a tax credit or deduction. Such expenses qualify in the year actually paid, and you can use payments made in 2011 for education that will begin during the first three months of 2012 to determine the amount of the deduction or credit.


If you have not made enough qualified payments in 2011 to claim the maximum deduction or credit allowed for your level of income, you can send the college a check for the first semester of 2012 in December.


Make your home more efficient
Have you taken steps to make your home green? If so, this credit is for you. The IRS considers qualified energy-efficiency improvements to be insulation, energy-efficient exterior windows and doors and certain roofs, though the cost of installing these items does not count and the deduction for windows is limited to $200. The credit also applies to the cost, including installation, of residential energy property such as high-efficiency heating and air conditioning systems.

If you haven't already claimed at least $500 in energy tax credits on prior years' tax returns, you can claim a credit of 10% of the cost of qualified energy-efficient purchases and improvements to your principal personal residence. The maximum credit is $500.

Also important: When buying, be sure to get a "Manufacturer's Certification" from the seller.


Make needed repairs to income properties
If you own rental real estate, such as a two-family home or vacation property, make needed repairs, buy supplies and make payments for the property this month and fill up the oil tank before year-end. You can also prepay real estate taxes, utility bills, insurance premiums and any January 2012 mortgage payment.

What Is A Mortgage Annual Percentage Rate (APR)?

More commonly called APR, Annual Percentage Rate is a government-mandated mortgage comparison tool. It measures the total cost of borrowing over the life of a loan into dollars-and-cents.

A loan’s APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above. When quoting an interest rate, loan officers are required by law to disclose a loan’s APR. The APR is not your interest rate in calculating your mortgage payments.

APR is meant to simplify the process of choosing between two or more loans. The theory is that the loan with the lowest APR is the “best deal” for the applicant because the loan’s long-term costs are lowest. However, the loan with the lowest APR isn’t always best.

APR makes assumptions in its formula that can render it moot.

First, APR assumes you’ll pay your mortgage off at term, and never sooner. So, if your loan is a 15-year fixed rate, its APR is based on a full 15 year term. If you sell or refinance prior to Year 15, the math used to make your loan’s APR becomes instantly flawed and “wrong”.

Example: Let’s compare two identical loans in WA — one with discount points and a lower interest rate; and one without discount points and a higher mortgage rate. The loan with discount points will have a lower APR in most cases. However, if the homeowner sells or refinances within the first few years, the loan with the higher APR would have been the better option, in hindsight.

Second, APR can be “doctored” early in the loan process.

Because the APR formula accounts for third-party costs in a mortgage transaction and third-party costs aren’t always known at the start of a loan, a bank can inadvertently understate them. This would make the APR appear lower than what it really is, and may mislead a consumer.

And, lastly, APR is unhelpful for adjustable-rate loans. Because the APR calculation makes assumptions about how a loan will adjust during its 30-year term, if two lenders use a different set of assumptions, their APRs will differ — even if the loans are identical in every other way. The lender whose adjustments are most aggressively-low will present the lowest APR.

Note: Loans with mortgage insurance will always have a much higher APR, such as FHA loans due to the mortgage insurance premiums included in your loan payments.

Summarized, APR is not the metric for comparing mortgages — it’s a metric. For relevant comparison points and the best way to approach the mortgage process, is to determine “rate vs. fee” and how long you plan to keep the home or mortgage. This way you can calculate the Return on Investment (ROI) just because a lender quotes you a low rate does not mean you’re getting the best deal on your mortgage.

Uncertainty in Real Estate, Job Market and Investments “What to Do”

We live in some pretty interesting times these days, it seems everywhere you turn it’s “Gloom & Doom” from the medias perspective. Remember the media thrives on reporting negative not the positive stuff!
Wanted to share my prospective on “what would be good financial decisions” for better positioning for the future based on the current landscape of the economy and how to best position yourself and your family for the future. No one knows what the future holds, but based on an overview of the financial markets and a bit of history, we can make decisions that give us a better footing for the future no matter what happens.

I will touch on a few things that you can do and will serve to put you in a much better position for your future financial well being.

1) With the current state of our economy and the unprecedented amount for money the Federal Reserve has pumped into the global market, it’s pretty safe to say we are seeing inflation on almost everything we consume. Now I will not spend the time reviewing how inflation works, but it’s pretty simple, as inflation goes up it diminishes our buying power of the dollars we have and therefore we can not buy as much. So you ask how I can hedge myself against this. A few things you can do, I posted a good article on a previous blog post (read post here) on the ability for you to take advantage of the historically low interest rates to keep your future housing expenses low, especially if you currently rent, which puts you at the greatest risk since future rents will continue to escalate as inflation goes up. Remember you will live somewhere, so why not own your own home instead of paying your landlord’s mortgage!

2) If I already have a home / mortgage and do not have an interest rate in at least the low 4s, it is important to refinance into a lower interest rate. Now a large percentage of homeowners do not have the equity to just refinance into a low rate, but the good news for you if your in that situation, new modifications to the “Making Home Affordable Program” or HARP as it’s known, will allow you to possibly streamline refinance into the low interest rates of today and lower your fixed housing expenses. You can read a past post (read post here) that provides a detailed questions and answers on this revised program.

3) Investments come in many shapes and sizes and if you are a person who has investments, you need to make sure your investments are at least growing at a faster pace than inflation or you are going backwards (true inflation is higher than the government’s published index) Owning real estate is and always has been a great long term investment, but like any investment buying or selling at the wrong time will be a bad investment. With the value corrections in the real estate market and the current record low interest rates, coupled with some unique opportunities in buying foreclosure properties (read post here) you can accelerate the growth of your investment portfolio or even allow you to buy your first home way below current market value, so you have built in equity from day one.

So with the tremendous turmoil in the world around us, another important thing you can do is build a surplus of non perishable foods and staples along with extra items you use every day in case of a natural disaster or a situation that cuts off the retail supply chain. Our whole national retailer supply chain, especially grocery stores is built on replenishing every 3 days, so if that supply chain is cut off for what ever reason, you want to make sure you and your family have what you need to eat and survive for at least 10 days or longer (in my opinion) Here is a good website that will give you ideas on what items to start stocking up on.