Wanda Bolden, right, of Baltimore donates clothes as Tom Hekins,… (Baltimore Sun photo by Lloyd…)
Only four days remain in 2010 — but that's still enough time to make a few financial moves that will not only lower your tax bill next year but help out charities and your retirement.
Here's a rundown of some last-minute tax-saving strategies:
Charitable donations Make a donation to a charity before year's end, and you can deduct it on an itemized 2010 tax return. Pay with a credit card, and you can claim the deduction for 2010 but won't have to pay the bill until next year.
Keep in mind that the IRS no longer just takes your word on small cash donations. You need documentation, like a receipt, bank statement or canceled check, to verify gifts you intend to deduct. And if you donate $250 or more, you would need a written acknowledgment from the charity.
But donations don't have to be monetary.
This is one of the busiest weeks of the year for the Salvation Army, whose stores accept clothes, furniture, housewares, appliances and knickknacks. "Clothing is always a hot item we need," says Maj. Forrest McIntyre with the Salvation Army Adult Rehabilitation Center in Baltimore.
To help you figure out the value of your used items for tax purposes, go to http://www.satruck.org. Noncash donations must be in good condition to be tax-deductible. Besides, charities don't want damaged items.
(McIntyre says some people dump old batteries and tires outside the Salvation Army's stores after hours. Not only are the items unusable, but the charity has to pay to have the trash removed.)
Tapping an IRA for charity You must begin pulling money out of a traditional IRA after age 701/2 so the government can finally start collecting taxes on it. Those who are charity-minded can make donations of up to $100,000 a year directly from a traditional IRA to a charity and not be on the hook for income taxes on the distribution.
You don't get a charitable deduction, but without the distribution counting as income, your adjusted gross income will be lower and you might qualify for tax breaks that you otherwise couldn't get.
This tax break was recently revived through 2011 as part of the recent tax law that extended the Bush-era tax cuts. Because the law was passed so late in the year, IRA owners will have until the end of January to make a donation and have it counted in 2010.
Save for college Maryland and many other states give an income tax deduction to those investing in their home-state 529 college plans. Maryland has two plans: one that allows you to pay for tuition in advance and a college savings plan managed by T. Rowe Price Associates.
A Marylander annually can deduct up to $2,500 in contributions per account or beneficiary, depending on the plan. Sock away more, and you can deduct excess contributions on future state income tax returns.
Check out http://www.collegesavingsmd.org for advice on how to get your contributions in by the year-end deadline.
Feather a nest egg You have until April 18 — next year's tax deadline — to contribute to an individual retirement account. But the earlier you get the money in, the sooner investments in the IRA can start to grow.
If you fall within certain income limits, or you and your spouse aren't covered by a retirement plan at work, you can deduct contributions to a traditional IRA. The maximum contribution this year is $6,000 for those 50 and up, and $5,000 for those younger.
Convert to a Roth IRA If you thought about converting a traditional IRA to a Roth, there might be no better time than this year.
Converting will trigger an income tax bill, as you would be taxed on the converted money that hasn't been taxed yet. (Once in the Roth, that money can grow and withdrawals in retirement will be tax-free.)
But for conversions done this year only, you will have the option of splitting the tax bill over two years on the 2011 and 2012 tax returns.
Fill the medicine cabinet You're allowed to deduct medical expenses that exceed 7.5 percent of your adjusted gross income.
That's a high threshold. But if you already have enough medical bills to qualify, stock up on needed prescription drugs or glasses to get a bigger deduction, says Barbara Weltman, author of "J.K. Lasser's 1001 Deductions & Tax Breaks."
Get documents organized "It's my No. 1 tax tip," says Jackie Perlman, tax analyst with the Tax Institute of H&R Block. "Now is the time to do it."
It's better to organize your receipts and other tax-related papers during a lull between the holidays than to wait until the tax season kicks into high gear.
"Very often they miss out on a deduction not because they don't have something to deduct," Perlman says. "It's because they can't find their paperwork."