You have been looking forward to Christmas all year, but after all the gifts have been opened and the Christmas cookies have been eaten, take the time before the end of the year to save some money on taxes and make sure your tax time is easy and stress free.
Review and gather all your personal information. Have you moved during the year? Did you get married? Have you made any other changes in your life? Did you have a baby? Adopt a child? These are examples of life changes that affect your taxes. Make sure you have made note of any changes whether you prepare your own return or work with Certified Public Accountant or Enrolled Agent.
Make sure you are organized. Make a list of the tax documents you will be receiving in January. Having a list will help you determine whether you have received all the documents due you. The documents include W2s for all employers you and/or your spouse have worked for this year. In addition it will include 1099INT for interest accumulated for any CDs or savings accounts at your banks. Consider any new savings accounts opened during the year. Even if you have closed an account during the year, you should receive documentation for the interest you accumulated for the time the account was active. In addition, make sure you have received a 1099 DIV for dividends received of individual stock or mutual fund investments. Filing your taxes without including one might cause you to incur penalties for not including income. Another 1099 you might receive is a 1099B for proceeds from the sale of investments such as stock or bonds or a 51099 G for refunds from state or city governments. You might also receive a Schedule K-1 if you are self employed and your company is organized as a partnership LLC or your company is taxed as a Subchapter S corporation.
Gather your medical prescription purchase receipts, doctor visit records, medical and blood test costs and a record of doctor and dentist visits. Dont forget to include your mileage for traveling to and from doctor visits. If you itemize, you can take a certain percentage of these medical fees on your Schedule A if they exceed 2½ percent of your adjusted gross income.
Did you purchase a hybrid vehicle in 2007? Did you buy an energy savings furnace, air conditioner or windows? A percentage of the cost could be used as a tax credit on your tax return. A tax credit can be more valuable than a deduction because it actually reduces the amount of income taxes due.
If you havent made any contributions yet this year, December 31st is your last chance. Consider getting generous at a non-profit New Year's Eve event. If you itemize (Schedule A), charitable contributions can help reduce the taxes you pay. Make sure you get detailed receipts for your donations and any non-cash contributions such as clothing or used appliances in good condition. Mileage driven for charitable services such as volunteering for Boy Scouts or the local hospital can also be included as well as appraisal fees for donation of expensive donation of assets.
Make sure you have contributed the maximum amounts to your 401K, IRA or other retirement investment account. You are allowed to contribute up to $15,500 annually to your 401(k). You can contribute up $4,000 this year to your own IRA and if you are not covered by an employer retirement plan, you can deduct the amount of the contributions on your tax return up to the amount of your earned income.
Time the Receipt of Income
If you have a year-end bonus and you know your income will be lower next year, try to have the bonus paid to you next year instead of this year. Also, if you plan to sell any of your stock portfolio research what gains you might receive and determine whether postponing the sale until next year will minimize your taxes. Also consider selling some stocks that would generate losses and reduce your taxes due, or offset the gains of your other stock sales.
Flexible Spending Accounts
If your employer offers a Flex Spending Account, make sure you have used all your funds. This type of account allows an employee to use pre-tax dollars on medical costs such as co-pays, dental work and eyeglasses. However, these accounts dont roll over, so make sure you have used it all before you lose it.
If you moved more than 50 miles from your old residence, because of a new job you may be able to deduct these expenses as an adjustment to gross income.
One of the best tax savings deductions available is the mortgage interest deduction. Pay your January 2008 mortgage interest in December and you can take an extra months interest as a deduction.
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