Act Now on Tax Credits, Deductions, Flexible Spending Plans; Save Money Next Year on Your Taxes

Hobson's Tips Say Act Now, Save Later

Dec. 21, 2009— -- You're in the middle of the holidays, and the New Year is just around the corner. With it, thoughts may turn to your taxes.

Mellody Hobson, the "GMA" personal finance adviser, is offering you five tips -- things that you can do right now to save big come tax time:

Buy a car or other qualifying vehicle. If you're in the market for a vehicle, now is a great time to buy a car, light truck, motor cycle or motor home. That's because dealers are trying to empty their lots and salesmen are eager to make deals so they can meet their quotas. But there's an added tax incentive to buy a new car in 2009. If you purchase one of the previously mentioned vehicles between Feb. 17 and Dec. 31, you may be able to deduct state and local sales and excise taxes. The deduction is limited to taxes paid on up to $49,500 of the purchase price. To be eligible, your annual income must be less than $135,000 for single filers and $260,000 for people filing jointly.

Take advantage of the American Opportunity Credit. It modifies the existing Hope Credit -- a tax credit that allows you to offset the cost of a child's college tuition. The American Opportunity Credit raises the existing Hope credit from $1,800 to $2,500, and makes it available to a broader group of people, including those families with higher incomes and those who owe no taxes. Income limits for the full American Opportunity Credit are $80,000 or less for single filers and $160,000 or less for joint filers, up from $48,000 for single filers and $96,000 for joint filers. The credit can be claimed by parents or students for a variety of college expenses, including tuition, books, lab supplies, software and other class materials. If you qualify, you don't have to itemize your taxes in order to claim the credit, but keep your receipts as supporting documentation.

Get energy-efficient appliances and home improvements. The stimulus bill includes tax incentives for energy-efficient home improvements for 2009 and 2010. To take advantage of the credit this year, you should buy before Jan. 1. You could receive a credit of 30 percent up to $1,500 when you purchase certain energy-efficient items or improvements, including insulation and air conditioning systems. There are limitations. For more information, check out the government's Web site at Be aware that if you claim the full amount of the credit in 2009, you won't be able to claim it in 2010.

Remember Documents, Health Care Spending Accounts

Get your documents in order. The IRS audited more than 1.4 million individual tax returns last year. Don't be unprepared. Organize all your paperwork, including receipts for itemized deductions, charitable donations and documentation of all income earned, just in case you get audited.

Don't forget your Flexible Spending Account. You have to use all the money you have deferred before the year is up, so if you have tax-deferred money left in your account, think about buying those extra pairs of glasses or getting that dental work. If you don't use it, you will lose the money.

Here are some additional tips that you might not have heard on the air:

Take advantage of the homebuyer's tax credit. Originally set to expire on Dec. 1, the first-time homebuyer's credit -- worth up to $8,000 for qualified buyers -- was extended into 2010. A credit of up to $6,500 was made available to repeat homebuyers as well.

Under the homebuyer's tax credit extension, you need to:

Purchase a home for less than $800,000 between Nov. 6, 2009 and have a binding contract in place by April 30, 2010 (the sale must be completed by June 30, 2010);

Meet certain income requirements: Single filers must have a modified adjusted gross income of less than $125,000, and for married filers the figure must be less than $225,000. Those who earn above these amounts may qualify to receive partial credit.

Additionally, to be eligible for the first-time homebuyer credit, you cannot have owned a home for the three consecutive years prior to your purchase. For the repeat homebuyer credit, you need to be an existing homeowner who has lived in your current home for five consecutive years out of the last eight and be purchasing another home as your primary residence. Finally, if you plan to claim the new homebuyer's credit on your 2009 or 2010 tax return (as applicable), you will need to complete Form 5405.

Job-related expenses may be tax-deductible. Despite the hardship of losing a job, if you earned more than $8,950 in 2009 or if you are self-employed and made more than $400, you need to file a tax return. Also, keep in mind that unemployment benefits are subject to federal income taxes and any money received must be filed on your federal income tax return. The good news is that the first $2,400 of benefits received is tax-free in 2009. Remember, too, that many of the expenses incurred while looking for another job can be deducted -- such as the costs for resume preparation, expenses related to employment agencies and headhunters, unreimbursed travel expenses incurred for interviews, including mileage, and even long distance and cell phone charges connected to your job search, so be sure to keep careful records.

Pay Mortgage Early, Apply Investment Losses

Pay Your January Mortgage by Dec. 31. If you itemize your tax returns, today is an excellent time to pay your January 2010 mortgage payment. If you pay your mortgage by Dec. 31, you are able to deduct the interest this year.

Apply Investment Losses: You can apply up to $3,000 of your losses to offset your taxable income and carry forward any losses in excess of $3,000 for future tax years. Keep in mind, if your losses are in your 401k or IRA, you cannot claim the $3,000 loss on your tax return. The credit is only available to you if you actually sold any of your investments.

Click here to return to the "Good Morning America" Web site.