A little planning now can save you big bucks next April 15. CBS This Morning Money Editors Ken and Daria Dolan suggest some year-end moves. (Consult a tax professional before acting, since everyone's situation is different.)
- ROTH IRAs:
Many people converted their regular IRAs to the newer Roth IRAs this year with the understanding that any IRA profits they had made would be taxed. Then, the stock market started to slide. The original investment would be worth less - and taxed less - if it had stayed in a traditional IRA. So, people began to reverse the account from a Roth to a traditional IRA, and then reconvert back to a Roth. This move meant that they would owe taxes only on the later, lesser profits of their investments. However, the IRS has announced that as of November 1 - this weekend - there will only be one more chance this year to make this tax-saving move.
Managing Your Money
- NEW DEDUCTIONS:
You can deduct up to $1,000 of interest that you pay on student loans as long as you're filing as a single taxpayer with an income that doesn't exceed $55,000 a year, or filing jointly with income that doesn't exceed $75,000 a year. The catch here is you have to be up to date on your student loan payments. If you're delinquent, get caught up now so you can take the full deduction.
- OTHER DEDUCTIONS:
Legal professional expenses must exceed two percent of your adjusted gross income before they can be deducted. Keep that in mind. You may want to bunch some of those expenses this year if you can. Also remember that 7.5 percent of your adjusted gross income (AGI) is the floor for medical deductions. If you're not going to have enough to make that floor this year, maybe you can stagger it. If you're close, get your wisdom teeth pulled now instead of next January.
- NEW PARENTS:
Get a social security number for the baby even if he or she is born at 11:59 p.m. on December 31. You can't take the deduction without having a social security number unless you want to become pen pals with the IRS.
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