It is that time of the year, after all the hoopla on the holidays; it is now time to think about the inevitable- tax! We haven’t even recovered from our holiday spending and Uncle Sam is already starting to knock on our doors. The holidays seem to act as a potion to relax our muscles and nerves for the coming year…as tax season approaches. With barely 5 days left, there are certain things you can do to lower your taxes before the year ends.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Flexible Spending Account
If you participate in your company’s Flexible Spending Account (FSA) and you still have money left, don’t let it go to waste. You can spend the money left-over to buy over-the-counter medications, buy new eye glasses or contact lenses, see your doctor or dentist and pay for the items with your FSA that are otherwise not covered by your dental and health insurance. There are companies that extend the offer to spend flex funds, oftentimes through mid March or 2 ½ months from December, check if you company is one of them.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Charity
It is not too late to donate to charity even if Christmas is over, you can still donate clothes, household goods, toys, and money to any of your favorite charities by December 31, 2007. You can include whatever the market value of what you donated in your tax deductions. Just make sure to get a receipt, letter from the charity, or bank records to show any cash or donations worth over $250.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Energy Rebates
If you are planning on doing a home improvement project early next year, why not buy your appliances and materials before December 31, 2007? This way you can still avail of claiming credit for any qualified energy efficiency improvements to your existing home which includes a new furnace, air conditioner, doors, windows, insulation, solar water heating, photovoltaic equipment, or fuel cell power. Please know that this is the last year you can do so.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Retirement Plan
Contribute the maximum allowed contribution for your retirement plan. The IRS allows you to contribute up to $15,500 in a 401(k) plan if you are under 50 years old (up to $20,500 if you are over 50). This is good since this is money that is yours when you retire at the same time it is free of tax.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Tax Deductions
Pre-pay your January 2008 mortgage bill by December 31, 2007. Also, if you live in a state that has a property tax, pay them off before the year ends. You can only deduct the amount paid in 2007.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Postpone Income
Check with your employer about the possibility of postponing your income. If you defer your 2007 income into 2008, the income will not apply to 2007. Remember that you can’t defer any income issued on 2007 even if you did not deposit or cash the check. If you are a freelance or if you go by invoices, you may want to send the invoice to your employers after the year ends so that they can issue you their payment in 2008.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Offset Capital Gains
Use your deductible losses on any of your investments to offset any gains. You are allowed to use $3,000 of net capital losses in excess of capital gains to offset ordinary income.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Defer Capital Gains
If you own stocks and if you expect to belong to the 10% or 15% tax brackets next year, you may want hold off selling your shares until 2008. This way, you won’t have to pay any tax on the profits from the sale of assets which you’ve owned longer than one year.
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Alternative Minimum Tax
Review your Alternative Minimum Tax (AMT) situation now to see if you’ll be one of nearly 23 million taxpayers potentially affected by it. Find out more about how this could affect your tax return or delay your refund. Per IRS: “The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.” For more info visit: http://www.irs.gov/taxtopics/tc556.html
Ten Year-End Tax Tips to Lower Your Taxes for 2007: Prepare Paperwork Early
You want to be able to prepare your taxes on time and be able to send them by the due date. Especially if you owe money, you will pay penalty if you do not file and pay your taxes on time. If you prepare early, you will save money on penalty fees.
Hopefully these tax saving tips can help you. You still have five days before 2007 ends; it may not be too late yet. Some of these tips will still be available for next year, but with the ever-changing tax laws, who would want to take the risk? Maximize your savings now for they may be gone tomorrow.
The author is neither an accountant nor a tax professional. Please consult a tax professional or an accountant if you need more information.