As year end approaches, you may find yourself wondering if it is better to take advantage of tax saving steps in the current year of 2008 or postpone them until 2009. Here is a simple list of things you can do in 2008 to lower your income taxes:
1. Get organized. Now is the time to get your financial records in order. It will make your tax preparation faster and easier, and you might come across additional tax deductions that you forgot about. Keep in mind, the IRS will require receipts and other records in the event of an audit. You may also want to consider using an accounting software such as QuickBooks or Quicken to track personal or business spending.
2. Pay your property taxes. If your taxes are not impounded by your mortgage company, you have the option of paying them in 2008 or 2009. Real estate taxes are tax deductible in the year in which they are paid.
3. Make your January mortgage payment a few days early. The interest you pay on the January payment will be added to your 2008 mortgage interest payment boosting your itemized deductions in 2008, if your payment is applied before Dec, 31.
4. Make a charitable donation. It is a good time to become the steward that God has called us to be. Take the opportunity to donate household goods, clothing, etc. Make sure you get a contribution receipt. Cash contributions are good as well.
5. Pay medical expenses. Pay insurance premiums, stock up on prescription medications, have the dental work you have been putting off, or buy the eyeglasses you need. Medical expenses exceeding 7.5 percent of your adjusted gross income are tax deductible.
6. Boost business expenses. Consider purchasing new computer equipment, renewing your subscriptions to professional journals, paying union or professional dues, and paying tuition for job-related courses which are tax-deductible expenses. It is also a good time to set up a self-employed retirement plan (SEP IRA) for tax deductible contributions made prior to your tax filing due date.
7. Contribute to your retirement savings account. Whether it is your employer-sponsored plan at work or an individual retirement plan, contributions to a retirement plan can reduce your taxable income.
8. Purchase a hybrid vehicle. If you are thinking of buying a hybrid vehicle eligible for a tax credit, check to see if it’s eligible for the credit and, if so, purchase it before year-end. You can check the eligibility of the vehicle at www.irs.gov.
9. Contribute to a health savings account. If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2008.
10. Consult with a tax advisor. Having a qualified tax professional prepare your tax return is likely to save you time, headaches and money.
Some tax savings steps are maximized if postponed until 2009. If you are thinking of making energy saving improvements to your home, such as putting in extra insulation or installing energy saving windows, postpone your move until 2009. A credit of up to $500 may be available for such improvements if made next year (but not this year). Substantial tax credits are available for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home. The credits are available whether you spend the money this year or next, but if you’re installing solar electric property and will be spending more than $6,667, the credit will be larger for expenses made in 2009 rather than 2008.
Matt Weissman is the tax manager at Laudadio and Associates, PA, Certified Public Accountants.