Christmas has come and gone – well, at least until that credit card bill comes. Before you begin the tradition of fearing the mail carrier and the inevitable sticker shock that awaits, why not take some preemptive measures and make it a little simpler to pay your credit card bill, your mortgage, or simply start that emergency fund that has alluded you.
This is indeed the time of year where planning pays. Consider a couple of year end tax saving strategies for perhaps a larger tax refund or smaller liability, depending upon your situation.
- Consider sending in some additional money towards your mortgage. The extra interest you pay will be deductible in 2008.
- Clean out your closet or attic and give clothes, old furniture, and books, to a charity like Salvation Army and the local library. Ask for help to determine the value and get a receipt. If you itemize, this can really add up and save you hundreds and perhaps even thousands.
“You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions.” (IRS Publication 78)
Make any cash charitable contribution by the end of the year. You can use your credit card therefore making charitable deductions deductible in 2008.
- Make certain you are getting your tax credits. Earned Income credit, Child credits, Education credits, etc. Credits are better than deductions and can save you hundreds. You can even get these credits before you get your W-2 in late January, early February. Many people fail to take them at all!
- Consider an IRA. If you have never invested before, this a great time to start and IRA’s are a great vehicle for tax savings. Traditional IRA’s help with saving taxes today and Roth’s will save you taxes in the future. Here is a good primer on how to start an IRA.
- Consider selling investments that are trading at a loss. For tax purposes, you are better off taking a loss in order to take advantage of either offsetting against gains or ordinary income of up to $3,000.00 a year. Make certain you stay out of the investment for 31 days in order to avoid the Wash Sale Rule.
- Consider paying your state and local taxes by the end of the year so they are deductible in 2008. This is where good year-end planning can really add up.
- If you have a high net worth or just have some cash sitting around, consider gifting some money to your children. The IRS allows you to give up to $12k per year without triggering estate/gift tax liability ($13k in 2009). This makes more and more sense with a Democratic majority and estate tax thresholds decreasing. The smaller your estate, the less you will have to pay in estate taxes.
- Consider changing your withholding. If you are consistently getting money back from the IRS, you may be withholding too much. This freed up cash can help us budget our money better.
Remember that a good tax advisor/preparer can really be worth their salt and getting your taxes done early can also create some savings too.
Many CPA’s offer an early bird special if you get them your information in February. This also allows for a better dialogue between you and your tax advisor. I can speak from experience from preparing taxes that the clients that got their information into the office in April did not get the same deductions that the client got in February and March. Simply, this is because there is no time for phone tag when you wait until the last minute.
|Written on 12/27/2008 by Bob O’Brien. Bob has been a financial advisor for 14 years and is a Sr. Instructor at Mywealth.com.||Photo Credit: rick|