By now you're probably done digging through paperwork for filing your 2010 tax returns. Or maybe you're still looking for a few more deductions.
Aside from contributing to a deductible IRA -- if you qualify -- there's not much more you can do to improve your 2010 tax picture. But 2011 is another story.
Boomers can -- and should -- prepare for their 2011 taxes now, while any painful money lessons are still fresh and there's still plenty of time to plan ahead for valuable deductions.
Here are seven smart moves to make today to lower next year's tax bill while also boosting retirement savings and improving other areas of your life.
1. Max out your 401(k) account.
The easiest way to lower your tax bill is to lower your taxable income, and that's what 401(k) contributions do dollar-for-dollar. If you earn $50,000 and save $5,000 in a 401(k), you'll only be taxed on $45,000.
In 2011, you can save $16,500 in your 401(k), and if you're over age 50, you can sock away an additional $5,500 catch-up contribution. That's a total of $22,000 if you max it out, which takes a big number out of your taxable income for the year.
The tax benefits go beyond 2011. The money you save will grow tax-deferred, so you won't pay any taxes on the earnings until you withdraw the funds, generally after age 59 1/2 without penalty.
Roth 401(k) accounts are also great for retirement savings, but contributions won't lower your taxable income.
2. Invest in a deductible traditional IRA.
While Roth IRAs are incredibly popular now because of their tax-free status, there may be times when you'd prefer a traditional Individual Retirement Account (IRA).
You can contribute $5,000 to either kind of IRA, and if you're over age 50, you can save an additional $1,000 catch-up contribution. (Those who meet certain income limitations can make their traditional IRA contribution deductible.)
For 2011, single taxpayers who are covered by a retirement plan at work can deduct their entire IRA contribution if they earn less than $56,000, and those who earn between $56,000 and $66,000 are allowed a partial deduction.
Taxpayers who file "married filing jointly" and have a workplace plan can fully deduct traditional IRA contributions if they earn less than $90,000, and they can take a partial deduction if they earn between $90,000 and $110,000.
You have until the tax filing deadline in 2012 to make your 2011 contribution, but why wait? The sooner you make the contribution, the sooner your savings can start to grow for retirement.
If you don't qualify for a deductible IRA, consider a Roth. It won't help at tax time, but it will help when you retire.
3. Track work-related expenses and consider self-employment.
If you (or your spouse) are out of work and looking for employment, you can deduct job search expenses, so save any receipts. Many boomers who are out of work have blazed a new path: starting their own business.
There can be big deductions if you're self-employed. You can deduct costs for equipment, supplies, professional publications, association dues, health insurance costs, and a home office if your space qualifies.
If you get a business up and running, you can also start a self-employed retirement plan, such as a Solo 401(k) or a SEP-IRA, which will lower your taxable income in the same way an employer plan would.
4. Think ahead healthwise.
Every adult should get regular check-ups to stay healthy, but there are times when we put off costly medical procedures or tests because we don't have the time or the money.
If you've been delaying seeing a specialist, having an operation or undergoing tests, consider scheduling medical visits all in the same calendar year. You can deduct medical expenses -- from co-pays to deductibles to out-of-pocket costs -- if they exceed 7.5 percent of your income. It's a high threshold to reach, but if you bundle your health needs in the same year, you'll have a better chance of hitting that number.
5. Sell your losers.
Many portfolios have gained in value since the market drop, and many investors have sold their winners to take profits. That will mean capital gains taxes when you file your return.
You can offset those capital gains taxes, and even an additional $3,000 of ordinary income taxes, by selling the losing investments in your portfolio.
Here's how it works: Let's say you have $10,000 of capital gains from the sale of stocks earlier this year. You also have several losing positions, including shares in ABC Corp., which currently show a loss of $15,000.
"Strictly from the tax viewpoint, you should consider selling enough of your ABC shares to recognize a $13,000 loss," says Gail Rosen, a Martinsville, N.J.-based certified public accountant. "Your capital gains will be offset entirely, and you will have a $3,000 loss to offset against a like amount of ordinary income."
Note: This only works in taxable portfolios. Your 401(k) and IRA accounts are tax-deferred, so you can't get a deduction by selling losing investments in those accounts.
6. Help your family.
If you care for aging parents, you may be able to deduct mom or dad as a dependent on your tax return as a "qualifying relative." You qualify if you pay more than half their support (including housing, food and medical care), and your parent earns less than $3,650 a year (excluding Social Security).
So if you're already helping a parent, or you plan to start, keep records of their needs and your contributions.
7. Go green.
You can do good for the environment and for your tax return by making eco-friendly improvements around the house.
You may qualify for a federal tax credit if you purchase certain energy-efficient windows, doors, water heaters, insulation, roofing materials and other items. Depending on the purchase, the credit may be worth 10 percent of the cost, up to $500. The credit expires Dec. 31, 2011.
There's a second tax credit for big-ticket items such as residential wind turbines and solar energy systems, worth 30 percent of the cost, with no upper limit. This credit continues through Dec. 31, 2016. Learn more at the EnergyStar website.
Check the Database of State Incentives for Renewables and Efficiency to see if your state offers additional tax benefits for going green.
When you're managing your money, taxes can take big bite. But if you plan ahead and consider your taxes throughout the year, you'll be better prepared to keep more in your wallet.
What have you done to lower your tax bill? I'd love to hear from SecondAct readers in the comments section below.
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