As the holidays approach and the year comes to a close, before you run out and buy gifts for others, make sure you give yourself a gift by wrapping up all the tax breaks you possibly can.

This year has an inordinately large number of tax credits and deductions that won't be around for long. The American Recovery and Reinvestment Act of 2009 (ARRA) has sunset provisions for many of its beneficial tax provisions, so now is the time to act. If these opportunities fit your situation, you should take advantage while you still can. (Always be sure to review all the details in the IRS publications or see your own tax consultant before taking action.)
First Time Homebuyers Tax Credit
This $8,000 tax credit expires quickly as you have to close on a principal residence before Dec. 1, 2009. You may qualify if you haven't owned a home in the past three years and don't exceed the income limitations. This isn't a reason by itself to buy a home, but if you're on the fence and you can get the deal done, it's decision time. (Tax credits can greatly increase the amount of money you get back on your return. Read Give Your Taxes Some Credit.)

Sales Tax Deduction for New Vehicle Purchases
This is not the well-known cash for clunkers program, which expired. Instead, this allows you to deduct state and local sales tax for new cars, light trucks, motor homes and motorcycles purchased from Feb. 17 through the end of this year. It's limited to taxes and fees paid on up to $49,500 of the purchase price, and it has income limitations that start to phase out at $250,000 for those that file jointly and $125,000 for those that file otherwise. Again, this isn't a great reason to go buy a car, but if you're on the fence, it might give you a nudge.

Tax Deduction for Educational Expenses
If you or your children are in higher education this year, a multitude of new tax incentives can help with education expenses. The American Opportunity Credit is worth up to $2,500 of the cost of tuition and related expenses. Even if you don't make enough money to file a return, this tax credit will give you a reason to do so as you can get up to $1,000 back.

Also, the federal government has expanded the existing educational tax credits to make them available to more people and allow more things to be included as qualifying expenses. And if you are paying for school with a 529 plan, the Feds have expanded what the money can be used for to include a computer. While beer is still not a qualifying expense, these new tax rules should help pay for a pint or two. If you are paying for higher education, be sure to review all the options to see which ones would serve you best. (For related reading, check out Choosing The Right Type Of 529 Plan.)

Tax Deduction for Real Estate Taxes
If you don't qualify to itemize deductions on your federal income tax, but you did pay state or local real estate taxes, you may qualify for up to $1,000 if you file jointly ($500 for single taxpayers). The additional deduction amount is equal to the amount of real estate taxes paid.

Health Insurance Subsidy
If you involuntarily lost your job this year, you may qualify for a 65 percent subsidy for COBRA continuation premiums for yourself and your family for up to nine months. You still have to pay 35 percent, but if you qualify, this should help you keep your health insurance. This subsidy phases out at $125,000, or $250,000 for those who file jointly.

Tax Deduction For Unemployment Benefits
Every person who receives unemployment benefits during 2009 can deduct the first $2,400 of those benefits. For a married couple, this applies to each person independently.

No 401(k) Distribution Required
Although not a tax credit, the waiving of the required minimum distribution (RMD) will help some people keep their money invested and avoid paying taxes on it for at least another year. The required minimum distributions for 2009 for IRAs and defined contribution plans, such as the 401(k), allow certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan. Of course, if you need the distribution to live on, this waiver isn't going to benefit you. But if you only take the minimum distribution and hate paying taxes on it, this may be just what you are looking for. (If you don't calculate your required minimum distributions accurately, you might have to pay an excise tax. Prevent this situation; read Avoiding RMD Pitfalls.)

It's Time To Act
When giving gifts, many people say that it's the thought that counts. In the case of your 2009 taxes, putting a little thought into taking advantage of these tax changes before they expire may count more than you think. Sure, it's possible that some might be extended. But Uncle Sam doesn't give tax breaks very often, so give yourself a gift this year and, if these make sense for your situation, take advantage of them.

Related Articles
  1. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  2. Professionals

    Is Delaying Social Security Until 70 a Good Idea?

    Soon to be retirees are often told it's best to wait until age 70 to collect Social Security. Here's why this is not always the best advice.
  3. Professionals

    Top Tips for Maximizing Social Security

    Between delaying filing, claiming strategies and taking advantage of special marital benefits, there are several ways to maximize Social Security.
  4. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  5. Investing Basics

    5 Things To Ask Before Hiring A Financial Advisor

    Choosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
  6. Professionals

    Advisors: Clients Want These Three Things from You

    Calmness, transparency and credentials (and more) are the key elements clients look for when selecting a financial advisor.
  7. Investing Basics

    Hiring a Financial Advisor? Look for the CFP Label

    Don’t skimp on the CFP designation. Here's why those three letters show that someone is qualified in financial and investment planning.
  8. Savings

    The Top Seven 529 Plans for 2015

    With so many choices and so many features (tax advantages, fees, annualized returns) to consider, it's hard to know which 529 plan to choose. Here's help.
  9. Insurance

    Life Insurance & Annuities: Sound Investments?

    There are certain scenarios in which investing in insurance is a savvy move. But expect a big chunk of your money to go toward fees.
  10. Investing News

    Why Saving 10% Isn't Enough To Get You Through Retirement

    Retirement experts and financial planners often tout the 10% rule: in order to have a good retirement, you must save 10% of your income. The truth is unless an individual plans to go abroad after ...
  1. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  2. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  3. How are variable annuities taxed at death?

    If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>
  4. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  5. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  6. How can I find tax-exempt mutual funds?

    Tax-exempt mutual funds can be found at many prominent investment firms. Most mutual funds offer a variety of investment ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!