Six End of Year Tax Tips

Posted by Bruce Mc on Dec 22, 2008 in Deductions, Form 1040 Information, Opinions, Tax Preparation, Taxes | 0 comments

          Since the New Year starts at the end of next week, you’ve got just a couple more days to take some steps to reduce your 2008 taxes. These tactics will lower your realized income so that you can reduce your overall tax bill come spring. Not all of these steps are going to work for all people, but in general, here are the 6 big end-of-the-year tax trimming ideas:

Give to Charity. If you have a favorite charity, giving money (backed by a receipt or canceled check) is considered a deductible item to reduce your taxable income. You can also deduct the fair market value of donated items you own, such as a used car or stuff around the house.

Maximize Your Retirement Account. If you can afford it, there’s no better way to reduce your tax bill than by contributing as much as you can into your retirement account. Yes I reaze the market is crazy, this is still a good idea for your taxes.

Sell Your Losers. If you own stocks and have ridden the highs and lows of the stock market, selling your losers and donating your winners can help offset some of Uncle Sam’s bite. If your once high-soaring stock decided to head south for the winter, consider selling it now to qualify for capital losses (you can always purchase it back, but not before 30 days). With this method, you can deduct up to $3,000 in losses from your gross income.

Donate Your Winners. With losers come some winners; that’s the hope at least. If you’re so fortunate, you can donate a portion of your appreciated assets to charity. You would avoid capital gains and be able to deduct the full amount of the donation. If you purchased stock worth $1,000 and it’s now priced at $1,500, you can avoid the capital gains of $500 (if you chose to sell it) and deduct the entire $1,500 from your income. By avoiding taxes and maximizing your tax deduction, it’s almost like the government is matching your donation – well, almost.

Leverage Your Home. If you’re a homeowner, you have several options to make additional deductions. If you have a property tax bill due in early 2009, consider paying it in 2008 to increase your deductions. You can also pay your January ‘09 mortgage, with the interest paid counting toward beefing up your deductions.

Get Organized. Knowing your options means knowing how much you’ve spent, donated, and earned. Mint.com or some sort of software like Quicken products (what I recommend most Quicken Online – Web-based Money Management) can help you organize your transactions and simplify your end of year tax planning. You can also view reports by category for the entire year.

Reducing your taxes is all about being smart with what you do with your money. Knowing where you stand is the first step in determining where you’re going.

Be sure to catch my entry at The Carnival of Personal Finance #184:  this is my first PF carnival. 

           Also please be sure to catch my guest post tomorrow over at Living Almost Large.

           Later this week I’ll also have a guest post over at $aving to Invest.

 This is the last “tax” post until after the holidays. I’ll have a Holiday post later this week.