Blog

While the year is quickly coming to a close, you can still take some important steps to save on your 2011 tax return.

According to Jessica James, CPA and author of "Justice for None," many of the deductions associated with the economic stimulus package will disappear in 2012, so you must take advantage of them by December 31. Now is also a good time to implement some strategies for maximizing your 2012 tax return. Following are James' tips for both 2011 and 2012 savings:

• Contribute to retirement accounts. If you haven't already put money into your traditional or ROTH IRA account for 2011, you've got until April 17 to do it. If you have a Keogh or SEP (Simplified Employee Pension Individual Retirement Arrangement for businesses), and you get a filing extension to Oct. 15, you've got until then to make your 2011 deposits. The maximum IRA contribution for 2011 is $5,000 or $6,000 if you're 50 or older by the end of the year. For self-employed people, the maximum for SEPs and Keoghs for 2011 is $49,000.
  


• Reconsider the home-office deduction. In the past, many avoided claiming a home-office deduction because it was seen as an IRS red flag. But the requirements and forms have been clarified so you can now avoid the mistakes that might lead to an audit. The rules have also been expanded so if you didn't qualify for a home-office deduction in the past, you may now. If you use a home office exclusively for business, even if you don't meet your clients there, you're eligible. For instance, a handyman who works mostly at other people's houses can claim the deduction if he does his paperwork at his home office.
  


• Maximize your Flexible Spending Account (FSA). The Health Care Act will limit the maximum you can put into these pre-tax medical expense accounts in 2013, so 2012 is the last year to use an FSA to pay for large medical expenses not covered by your health insurance with pre-tax dollars.
  


• Consider selling investments in 2012. The Tax Relief Act maintains the tax rate cap on capital gains and dividends at 15 percent through 2012. In 2013, the cap for capital gains will increase to 20 percent and for dividends, 39.6 percent. The Health Care Act also created a 3.8 percent Medicare tax on investment income, effective in 2013. Given those scheduled increases, plan to take advantage of the rates next year.
  
  Steve Breihan