If you think you may bump up to a higher tax bracket in the future, consider establishing a Roth IRA. Although there is an upfront tax hit, future distributions are tax-free. As of Jan. 1, people who didn't qualified for Roth plans because they earned $100,000 or more can pursue the option of a conversion for the first time.
If you're self-employed, consider opening a small-business retirement account such as a SEP-IRA, SIMPLE IRA ("Savings Incentive Match Plan for Employees") or individual 401(k). If you open a qualified retirement account by Dec. 31, you have until the day you file next year, including extensions, to make contributions for this year.
If you're 70½ or older and required to take minimum distributions from your retirement accounts, you would traditionally need to do so before the end of the year. But remember that minimum distributions have been suspended for 2009 and will be reinstated in 2010.
Debt consolidation is also a smart move to consider as the year draws to a close. You may benefit by replacing credit card debt with a lower-rate, tax-deductible home equity loan or line of credit.
If you lowered your mortgage interest rate in the past year, you may now have a lower-interest deduction, Spiegelman says.
"If you used any of the proceeds for something other than physical improvements to your home, that amount may be subject to the AMT," he says. "On the brighter side, remember that points paid in prior refinancings that you didn't already deduct can be deducted in the year you refinanced again."
If you suffered losses in 2009, there may also be a silver lining. You can use capital losses to offset taxable capital gains, plus up to $3,000 in ordinary income ($1,500 for married couples filing separately). Look in your taxable accounts for investments with relatively large losses where you don't expect a comeback. Any losses you can't use to offset gains this year can be carried over into future tax years.
Be sure to stay clear of the so-called "wash sale rule," which prohibits taxpayers from recognizing losses on sales of securities that are repurchased within 30 days. If your investments rebounded, taking your profits in 2009 may make sense. The maximum capital gains rate, now at 28%, is likely to increase by 2010 or 2011.
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