Would you like to keep a little more of your hard-earned cash in your pocket when you file taxes next year? Don't wait to take action. Use these simple steps in 2009 to save money when you file in 2010:

• Make or increase your 401(k) contributions.

Your 401(k) contributions come off your paycheck before taxes are withheld and reduce your taxable income immediately. Many employers match a certain percentage of your contribution. Take advantage of this opportunity for "free money." You can make regular contributions or a one-time contribution up to $16,500 (plus an extra $5,500 if you're 50 or older) in 2009.

In addition to the immediate payoff, if you are within certain income limits when you file 2009 taxes take advantage of the Savers Credit to trim your tax bill up to $1,000 (single filer) or $2,000 (joint filers). The Saver's Credit is available in addition to any other tax savings that apply.

• Buy a house.

Participate in the American dream and benefit from this life investment. If you, or your spouse, haven't owned a home in the past three years you can qualify for a tax credit of 10% of the purchase price, up to $8,000.

What's new in 09: you don't have to repay this credit unless you sell the home within 36 months. You must complete your home purchase on or before November 30.

• Buy a new car.

If you buy a new car between February 16 and December 31, 2009 you may be eligible for special state and local tax deductions. This is true whether or not you itemize deductions on your return.

The amount of the deduction phases out if your modified adjusted gross income is between $125,000 and $135,000 (individual filers) or between $250,000 and $260,000 (joint filers). This deduction does not only apply to new cars, but also to light trucks, motor homes, and motorcycles.

• Pay college bills.

If you pay at least $4,000 in tuition, fees and course materials in 2009 from a source other than a 529 or Coverdell, you can qualify for the American Opportunity Credit of up to $2,500.

The new credit modifies the existing Hope Credit, making it available to more taxpayers than in 2008-those with higher modified adjusted gross incomes (up to $80,000 single filer and $160,000 joint filers) and those who owe no tax. The credit phases out if your income is above these levels.

• Sell off dying investments.

You can deduct a worthless stock if you have sold the shares before the end of the year. If your stocks would bring in less earnings than the broker's commission for selling the stocks then you would be able to claim it.

Capital losses are used to counteract capital profits, but there is a limit. The maximum amount that can be deducted against your income is $3,000. Additional losses are passed onto upcoming years.

• Give to a charity.

If you itemize your deductions, write off your 2009 cash and non-cash donations to charity. You can also deduct transportation and other out-of-pocket costs, such as the costs of ingredients for a dish you make for a nonprofit's soup kitchen.

You can only deduct contributions to qualified organizations, not to individuals. Also, you can not deduct donations you make to political groups or candidates. Some donations receive special benefits, for example, giving to relief efforts for the Midwest disaster area.

These are activities that you may already be doing without realizing that they may qualify you to lower your taxes. Take advantage of them!

Published November 2, 2009

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