As the holidays approach and this long, but historical, year comes to a close, there is no better time to prepare early for next tax season. Our country’s economic outlook may seem dreary, but there are still plenty of ways to save money on your taxes. To help the readers of my blog better manage their bucks in both the present and the future, I have compiled the following list of the top 10 end of the year tax tips.
1. Charge It
Paying deductible expenses with a credit card before December 31st will allow you to claim the deduction this year. You can also wait until next year to pay off the charges. You also may qualify for credit card rewards.
2. DE-fer! DE-fer!
To keep your taxable income and liability down, try deferring some of your income until next year. This tip is easiest to for those of you who are self-employed, but many others can benefit from it as well.
3. Mortgage Payments
By making your next mortgage payment before the end of the year, you can take a higher interest deduction this year. However, remember that you will have one less mortgage payment to claim next year.
4. Get your Finances in Order
Conduct a thorough review of your income, expenses, deductions, and financial portfolio. You cannot reduce your income tax liability at all until you are crystal clear on just what your financial situation is. It can be helpful to get this done before the end of the year, that way you are not running around at the last minute looking for important financial documents.
5. Get Married, Already!
A lot of couples are planning on getting married in early 2009. However, if you decide to have the wedding in late 2008, you get to claim Married, Filing Jointly status on your 2008 return. This could lead to more favorable tax consequences (e.g. additional exemption, etc.)
6. Remember Retirement
Make “catch-up” 401(k) and IRA contributions if your contribution level is less than the maximum allowed (and if your plan will let you do it). This will not only benefit you in the long run with an ample retirement fund, but it will also lower your taxable income for this year.
7. The Season of Giving
Not only is it good for the heart to make charitable contributions, but it can also be good for your wallet! Make sure to collect all receipts for any charity contributions you have made this year, and if you have not made any yet then – well, ‘tis the season!
8. Prepay State and City Taxes
Remember, you can deduct all state and city taxes that you pay. So prepaying any state or local taxes you might owe before the end of the year means that you can deduct it from this year’s federal tax return.
9. Stock Up
If you own a business, or are self-employed, then now is the perfect time to stock up new supplies. You can deduct all of these expenses, plus at the time of the year many stores offer large holiday discounts. So by purchasing these items now you might be able to save a little money!
10. Check, Re-Check your Withholding
At the end of the year it’s a good idea to check, and double-check, your withholdings to assure that you are paying the exact amount you should be. It might not make an affect on your upcoming tax return, but it can get you on the right track for the next tax season.