There has been little normalcy in financial matters the last couple of years, which extends to tax strategies.
Several factors are affecting traditional year-end decisions taxpayers make to reduce their burden -- whether they are affluent or jobless.
Out of workAnything you spend on a job search can be deducted if you itemize. Think resumes, mailing costs, even air travel that is not reimbursed.
If you relocate for a job, you can claim moving expenses.
If you or your children are going to college, you can collect a tax credit of up to $2,500 under the American Opportunity Tax Credit. If you pick up a course to enhance your skills, you could claim up to $2,000 of what you have spent. Search "tax benefits for education" at www.irs.gov.
If you set up a business after losing a job and buy health insurance on your own, the costs can be deducted. But there's no deduction for COBRA coverage through a former employer, because a government subsidy is built into that, said Bob Scharin, senior tax analyst at the Tax and Accounting business of Thomson Reuters.
For investorsLuscombe says dividends and capital gains could end up being taxed 20 percent or more.
So if it makes sense from an investment point of view to sell stocks, bonds or other instruments this year and next, investors could save themselves taxes. That's especially true of people in the 10 percent to 15 percent tax bracket, who pay no capital gains taxes now, said Scharin.
For the affluent The government temporarily reduced taxes employers took out of paychecks. In the case of high earners -- especially two-income families -- that might mean you will owe more come April 15. Luscombe suggests taking a look now so you can adjust and not be penalized for underpaying taxes. Increasing 401(k) contributions can reduce taxes.
And taxpayers must think through strategies, such as paying property taxes early, to avoid the alternative minimum tax, a higher rate that excludes some deductions. Tax planning is complicated this year because there is uncertainty about the future. Because the top bracket could jump to 39.6 percent from 36 percent by 2011, Luscombe says pushing 2009 income into 2010 might not be wise.
For businessesUnder Section 179 of the Internal Revenue Code, businesses can buy $250,000 in equipment before Dec.31 and deduct the entire amount this year. Tax analyst Mark Luscombe says tax laws call for the provision to revert back to a $133,000 deduction in a single year.
For seniorsPeople older than 70 ½ usually have to take some money from their 401(k) and IRA each year and pay taxes on it. But the government has waived that requirement this year so retirees can make up for losses when the stock market plunged.
If you took a withdrawal this year and wish you hadn't, Mark Luscombe, CCH Inc. federal tax analyst, suggests you return the money to the retirement account by Nov. 30.
In the future, there will be less money in the IRA, so distributions and, consequently, taxes will be lower.
EnvironmentalIf you complete energy-saving improvements to your home by year-end, you can claim 30 percent of the cost, for a total tax credit of up to $1,500. The credit extends to next year.
There are also incentives for energy-efficient cars. Search "energy tax credits" at www.irs.gov.
Sales tax strategy:If you live in a state with low or no income tax, you're probably better off deducting state sales taxes.
So if you have a major purchase to make, get the most mileage from it by buying this year. Need more incentive? Tax experts think the federal government might change tax laws so state sales taxes will no longer be deductible.
You also have only until the end of this year to buy a car worth up to $49,500 and deduct the sales tax.
Reduced incomePeople who don't have enough miscellaneous expenses to deduct might be able to if their incomes are lower than usual.
For example, you can't deduct medical expenses unless they are 7.5 percent of adjustable gross income. But if you have a lot not covered by insurance -- Lasik surgery, dental work, travel expenses to the doctor -- they might meet the tax threshold.
If you expect higher income next year and need medical treatment that will take you over the 7.5 percent this year, do it now.
To see whether accelerating expenses is worthwhile, Thomson Reuters analyst Bob Scharin suggests adding your mortgage interest, real estate taxes and state or local income taxes. If you don't have a home or the total is less than the standard deduction, it's probably not worth it.