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Tax credits now mean big savings later
Monday - 11/29/2010, 10:31am EST
Federal News Radio
While open season is high on most of your mental checklists, it's time to start thinking about taxes. Ed Zurndorfer is a registered employee benefit consultant. He joined The Federal Drive with Tom Temin and Amy Morris to discuss with some 2010 Year-End Tax Saving Suggestions, including energy credits to keep your home warm and tweaks you can make now to your TSP to save even more later.
Zurndorfer first suggests federal employees to contribute the maximum possible to the TSP.
"When employees contribute to the TSP, they definitely have a savings for their federal taxes and in most states, state income taxes."
Zurndorfer noted that federal employees can contribute a maximum amount of $16,500. In addition, if an employee will be at least age 50 as of December 31st, 2010, they can contribute an additional $5,500 in catch up contributions.
"Some employees are under the impression that they cannot increase their contributions unless there's a so-called 'open season,'" Zurndorfer said, "but there's no such thing as an open season when it comes to the Thrift Savings Plan. All employees can increase their contributions to the TSP at any time."
Zurndorfer also talked about what do in a rough economy. While many federal employees tend to put their money in "safe funds", Zurndorfer says this is not a good idea.
Zurndorfer's other suggestion is for federal employees to take advantage of energy tax credits before the end of the year.
There are two types of tax credits available:
- Residential (nonbusiness energy property credit): this equals approximately 30% of improvements. It could result in as much as $1,500 in tax credits. The improvements eligible for the credit include installing storm doors, storm windows and certain roofs among other things. The key to this is that you must have the improvements completed and installed by December 31, 2010
- Residential energy efficient property tax credit: this is available if you make improvements such as buying solar electric systems, solar hot water heaters, geothermal heat pumps and wind turbines. While these can be very expensive upgrades, there is a 30% tax credit available and because these types of improvements save money on electric bills, you may be able to pay for the cost of the improvement within a few years.