Edmund Burke once said, “You can never plan for the future by the past.” However in the case of preparing taxes for 2008, what you have done this past year can impact your future!
This time of year we begin thinking about tax savings. Tax advantages are pretty much gone after December 31st, so focus on these year-end tax strategies to see if there is anything that will give you a financial edge. With economic uncertainty, changing tax laws and fluctuating opinions, it is difficult to pin point the best moves to make. However, these are basic ways to tackle year-end tax planning.
1. Make Losses Work For You
2. Your Primary Residence
3. A Second Look At Your Second Home
4. Avoid Being Fuelish
5. State and Local Taxes
6. Make The Most of Medical Deductions
7. Pledge to Be A Giver
8. Dues, Fees and Miscellaneous Payments
9. Balance Your Payroll Withholding
10. Consider Tax Preparation & Tips
1. Make Your Losses Work For You
If you have been hit with losses in your investments, you can use those to offset any capital gains you might have. If you have more losses than gains, you can use up to $3,000 of the excess losses to reduce your taxable ordinary income. And if you have even larger losses, you can carry over the amount in excess of $3,000 to future tax years.
2. Your Primary Residence
Now is the time to make that extra mortgage payment to make a difference on this year’s taxes. By paying your mortgage payment due Jan. 1st on December 31st, you will have more interest to deduct. Make or make a decision to send a bi monthly payment in 2009 rather than once a month. The additional principal payments will allow you a higher deduction for the interest paid.
Consider this same strategy also for your property taxes. Check with your county or municipal tax office and see if they will take your payment in December.
3. Second Look At Your Second Home
Profit from the sale of your home can be substantial. If it is your primary residence, you can claim up to $250,000 in tax-exempt profit, or $500,000 if you're married and file a joint return. However, after this year, you will have to pay tax on gains when selling a second home.
NOTE: If your primary residence is on the market and you have a second home you can move into, “if” you move into your second home before the end of the year, you will be able to sell both homes and enjoy the tax-exempt profit. However, on Jan. 1, 2009, the tax loophole ends for tax-exempt gains on more than one house.
4. Avoid Being Fuelish
Sure, gas prices have come down and we are all thankful for that! How long it will stay that way is anyone’s guess. If you are considering a new vehicle, choosing a hybrid is profitable for many good reasons. You will save gas and money and may also be eligible for a tax credits. If you are not sure what vehicles are eligible, check out the Web page “Alternative Motor Vehicle Credit” and see what options are still available.
5. State And Local Tax
If you itemize on your tax return and the state you live in has no sales tax, you can deduct state and local taxes you pay on this year’s federal tax form. Even if you haven't kept track of all your sales tax payments this year, don't worry, the IRS provides tables for the state amounts, and a work sheet to help you figure city and county tax.
Also check on sales tax paid for any new motorized vehicle and get your fair deductions.
6. Make The Most Of Medical Deductions
Any medical deduction you enjoy is directly related to your gross income. You can only deduct costs that exceed 7.5 percent of your adjusted gross income and only expenditures above that amount are deductible. If you have heavy medical expenses and are close to or have exceeded the limit requirement for medical deductions, you may want to squeeze in that procedure this year instead of waiting for January.
7. Dues, Fees and Miscellaneous Expenses
Home Association fees, business related educational costs, professional dues can all be claimed if paid before the end of this year. Don’t forget resource and research material including related books and magazines that help you in business. These miscellaneous items must exceed a percentage of your adjusted income, usually 2%.
8. Pledge to Be a Giver
Donations dated before Dec 31 can benefit both you and the charity. Know and trust the organization you are donating to and make sure you receive a tax-deductible receipt. You will need documented giving records if the IRS ever reviews your tax return.
Consider donating items you no longer use to charity especially that old car that’s sitting around. Vehicle donations have special deduction rules depending upon how the charity uses the vehicle. You should get a statement from the nonprofit detailing its plans for the vehicle and how much you can deduct.
You can also donate an asset you've owned for more than a year. You will bless the charity and you get to deduct the asset's value with no capital gains taxes.
9. Balance your Payroll Withholding
Yes, that few dollars is nice to have on payday but if it doesn’t profit you much if your tax situation leaves you owing a lot of money at tax time! A few changes on your W-4 form can help you avoid this for 2009. Ask your humans resources director if you need help in figuring how many deductions to take.
10. Consider Tax Preparation
Shelves in stores are now stocked with new software that makes filing easier, even if you’re a computer novice. Depending on the complexity of your taxes, many of these new technology programs not only help with tax preparation, they have tips, ideas and ways to track and keep more of your money for 2009.
Keep in mind that tax preparers and accountants have all the latest changes in tax laws and a good one will help you save overall.
December 31st is the end of 2008 and the end of opportunities to make a difference in this year’s taxes. You can make 401 contributions up to April 15th.
As always I advise you to speak with your personal tax adviser for details that might be unique to your tax situation. Be educated and pro active and save on your taxes.BLOG COMMENTS POWERED BY DISQUS