You may be thinking, “Taxes? But it’s not even the holidays yet!” True. But year-end tax planning starts long before April 15. If you plan ahead, you may be able to reduce the amount of money you’ll owe “Uncle Sam” for 2008.
How? Paying some deductible expenses early and deferring taxable income until a later year may lessen your 2008 tax liability.
Make Your January Mortgage Payment Early — You may be able to deduct the interest portion of your January 2009 mortgage payment on your 2008 tax return if you make the payment by December 31.
Give to Charity with Your Credit Card — If your favorite charity accepts donations on a credit card, charge your contribution by December 31. The IRS considers the date the donation was charged to your card to be the contribution date. You can claim the deduction on your 2008 tax return but won’t have to pay the bill for another month or two.
Donate Items You Aren’t Using — You can deduct the fair market value of clothing, furniture, and other household items that you donate to a charitable organization on your tax return. The items must be in good used (or better) condition. Be sure to list each item and ask for a receipt.
Put Money in a Traditional IRA — You have until April 15, 2009, to contribute up to $4,000 ($5,000 if you’re age 50 or older) to an individual retirement account (IRA) for 2008. All or part of your contribution may be tax deductible, depending on your income and filing status and whether or not you or your spouse is covered by an employer’s retirement plan.
Max Out Your Retirement Plan Contribution — You generally don’t pay current taxes on salary deferral contributions you make to your employer’s retirement savings plan, so contributing the maximum amount allowed can lower your tax bill. If you’re age 50 or older and your plan allows, you can save even more on taxes by making “catch-up” contributions to your account.
Bunch or Defer Medical Expenses — You may be able to exceed the 7.5 percent of adjusted gross income (AGI) floor that applies to itemized medical deductions by scheduling and paying for medical or dental procedures in 2008 that you planned for early 2009. If you won’t exceed the floor this year, defer any expenses you can until 2009.
For more information, please contact Theresa M. Stewart, CPA, An Accountancy Corporation at 661-775-9534.