Somehow or other the taxman always seems to get his due. This year the hit from taxes feels particularly painful in the light of dipping home values, crashing 401ksand rampant job loss. Despite all the bad news these days, taxes are still a fact of life. Here are few things you can do before the end of the year to minimize the taxman’s bite.
Donate to charity: “It’s always better to give than receive”–remember? Many are far worse off than you are…Besides gifts to Goodwill, the Salvation Army and the like, you can also donate cash, property or household items. For these, deduct full market value.
For some, donating a used car may be the best use of the vehicle. The rule here, though, is you can deduct only the amount the charity got for the vehicle, unless the charity keeps the car for its own use. Then you can deduct full market value.
If by any chance you might have to pay capital gains on stock appreciation [yes, even this year, it’s certainly possible], you can donate the stock thus avoiding the capital gains tax and gaining the full value of the stock as a deduction. Just remember, starting in 2007 you need a written receipt for all donations.
Give Money Away. Did you know you can give up to $12,000 away to pay someone’s tuition or medical costs? You can even give away appreciated stocks. Just be sure the check clears by December 31st.
Accelerate Deductible Expenses: This means pay the whole of your property taxes now or make an extra mortgage payment or pay off those medical bills. That way these deductions apply for 2008 tax year.
Defer Income. If you know your income is going to be especially high this year [lucky you!] , defer that end-of-year bonus or commission check until the beginning of next year. Cashing in savings bonds can be delayed and you will still get the income.
Offset capital gains. This is the time of year to take a good look at your investment portfolio and consider selling losing stocks to offset your capital gains. The loss from the stocks will counter the gains acquired from others, lowering your tax bill and softening the blow from under-performing stocks.It’s also important to remember that net losses can be deducted in full against other income—up to a $3,000 annual maximum write-off. Losses offset gains dollar for dollar up to the $3,000 limit, which can make unloading losing stocks this year a smart financial move.
Contribute the maximum to retirement accounts. With the stock market swinging wildly from day to day or even minute to minute, many will resist this idea. Just remember you can have a self-directed IRA which does not have to invest in the stock market. Use it to buy real estate or whatever you think is going to be a good investment for your retirement.
Flexible spending Accounts. Do you have a flexible spending account? It’s a great way to save cash. And you can use the tax-free money to pay eligible medical and child care expenses. You can use it to pay for medical or dental expenses that aren’t covered (or fully covered) by insurance, like glasses and certain over-the-counter medications. You can also set up an account to pay for child care while you work or attend school.
Thanks to LegalZoom.com for tax information.