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Once December 31st has come and gone, your tax liability for the 2010 tax year will be set in stone. Until then, and especially now that your final tax picture for 2010 is becoming more clear, year-end tax planning presents a unique last chance to lower your tax bill. It is an investment in time well worth considering.
Tax preparation for the March 15th or April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren’t due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning. Getting a head start could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
By taking certain steps now, before 2010 draws to a close, you can reduce the size of your tax bill otherwise due when you file your return next year. Especially this year, when Congress has inserted a handful of powerful but temporary tax breaks to get the economy moving again, you do not want to overlook any deduction or credit that you can take in 2010 to lower this year's tax bill. Managing what income you recognize or defer also can pay dividends as you focus on balancing your tax rates between 2010 and 2011, and beyond, with tax reform on the horizon.
Year-end tax planning is made more urgent in 2010 because of some significant tax law changes, both those that have taken place to stimulate the economy and those now on the horizon to pay for the recovery.
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