The end of the year is rushing to a close, which means now is the time to finish your plans for saving money on your 2008 taxes. While there are some things you can do after December 31st to lower your tax obligations, most things must be accomplished by the year’s end.
Year end tax moves:
Contribute to your deferred retirement accounts. Most contributions to your defined contribution plans such as a (401(k), 403(b), TSP, etc.), need to be made by December 31st. Increasing your 2008 contributions will reduce your taxable income. You can also contribute to a Traditional IRA, SEP IRA, or Solo 401k plan and certain other retirement plans after December 31st and still reduce your taxable income – as long as you contribute before the tax filing deadline. If you can contribute extra – do it in the accounts that close out by the end of the calendar year before contributing elsewhere. Here is more information about year end retirement plan moves.
Harvest your losses. You can sell losing investments and offset up to $3,000 of other income per year. Any additional losses can be carried forward to future years.
Prepay your mortgage and property taxes. If you itemize your taxes, you can deduct mortgage interest and your property taxes. If you make your January payment in December, you can deduct the interest in 2008.
Prepay other deductible expenses. You can also prepay other deductible expenses such as medical costs, student loans, etc.
Donate to charity. Any donations you make to a qualified charity can be deducted when you file your taxes next year. This includes donations such as tithing or giving to an organization such as Goodwill, or USO. Before you give to organizations, you should know which questions to ask to determine which charities are legitimate and be aware of charity scams.
Qualified business expenses. If you have your own business, you can write off certain expenses. As long as you pay your expenses by the end of the year, you can write it off next year. This would include things like prepaying for webhosting, buying a new computer, paying for advertising, or other qualified business expenses.
Additional tips for saving money on your taxes:
- Get married. In some cases getting married can lower your taxes.
- Avoid mutual funds with high capital gains distributions. Capital gains distributions equal taxes, even if your fund lost money.
- Contribute to a 529 plan for your kids.
- Close out your home by year end. If you are already buying a home, try to close by Dec. 31st.
- Claim your first time home buyer credit early. This works if you plan on buying your first home before July 1, 2009.
- Deduct job related expenses, including moving. If you moved over 50 miles for a job or relocated due to military requirements, you can deduct related expenses. You can also deduct mileage on your personal car if it was used for work (commuting does not count).
- Tax tips for college students. There are some additional tips for tuition, earned income credit, grants, and other school related items.
- Have a baby. Babies are great tax deductions!
{ 8 comments… read them below or add one }
Funny. My wedding anniversary is actually Dec 30th! Too bad I can’t get married again for additional deductions (to the same wonan of course)! The baby deduction is great but you have to plan it out 9+ months prior. (We missed these with both our kids who were born in Jan).
Great list of tax moves for the end of the year!
We’re expecting (due in March 09). I’ll see if I can convince my wife to move a little quicker.
@ PT – Too bad you can’t charge the hospital fees upfront this year to take the deductions!
PT, That might be just a little too soon! But you should have a nice deduction in 2009.
Great tips on getting ready for taxes! Thanks for mention my post. I realized I missed a few choice opportunities in college with my taxes.
Very timely post. I read and enjoy your blog all the time. My husband and I have been having discussions about tax issues lately. Perhaps you can help settle a disagreement. I’m working as an independent contractor. I have a home office, telephone, travel, auto, and expenses related to all of these. I have school-aged children. The company I work for deducts taxes and pays me after tax income. They pay my taxes directly to the IRS. I say I still need to file a tax return, and by including all my deductions, may even get a refund. He says I don’t even need to file. What are your thoughts?
Carol, you should check out “Tax Strategies for Business Professionals” by Sandy Botkins, it pretty much covers everything you’re asking about.
Carol: Carol, thanks for the kind words and for reading my site. In my opinion, you should always file your taxes with the IRS so long as you have income. You may find out that you paid too much in taxes and receive a refund, or you may find out not enough income was withheld and you owe money. The first case is obviously the better scenario, but in the latter situation, the IRS can impose penalties if you don’t pay enough. These can compound over time and you can find yourself owing thousands of dollars more than the original amount – just in fines and penalties.
You may be able to find the book Ben referenced at your local library. Another option is to call an accountant with this question.