Just a reminder that 2008 will be over in less than two weeks, and that means that your opportunity to reduce your 2008 taxes is coming to an end soon as well. Most tax planning strategies must be implemented before the end of the year to reduce the current year’s taxes. There are a few exceptions (funding your IRA for example), but for the most part, once the tax year is over, it’s too late to reduce your taxes for that year.
There have been many changes to the tax law this year so you may not even be aware of all the tax credits and deductions that you may qualify for. Here are some tax planning strategies that you may be able to take advantage of before the year ends:
Real Estate Tax Deduction — New for 2008, there is an additional standard deduction for those who don’t itemize their deductions, but who pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid up to $500 for single filers or up to $1,000 for joint filers. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.
First-Time Homebuyers Tax Credit — First-time homebuyers may qualify for a new tax credit available for a limited time. The credit applies to primary home purchases between April 9, 2008, and June 30, 2009. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. This tax credit is more of a loan than a credit in that it must be paid back in equal payments over 15 years. First-time homebuyers are those who have not owned a home in the three years prior to a purchase.
Tuition and Fees Deduction — While this isn’t a new deduction, it was scheduled to expire in 2007 and was recently extended for 2008. This deduction allows you to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse or a dependent. You do not have to itemize to take this deduction. However, a taxpayer cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning
Credits) for the same student in the same year. Income limits and other special rules apply to each of these provisions.
Educators’ Out of Pocket Expense Deduction — The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school. Worth up to $250, the educator expense deduction is available whether or not the educator itemizes deductions on Schedule A.
New Rules for “Cash” Charitable Contributions — Just a reminder that the rules for charitable donations have changed. Since tax year 2007, to deduct any charitable donation of money, you must have a bank record, credit card statement or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. In determining what may be deducted as a charitable contribution, see IRS Publication 526 for 2008 to be released in the near future.
Planning Your Income — Some taxpayers, such as the self-employed, may have some discretion regarding when they receive income. Properly deferring income until next year can lower your taxable income and tax bill this year. This strategy will, however, raise your tax bill next year. And many taxpayers also have some control over their income via the sale of investments to incur a gain or loss. This is generally a key area of decision-making for investors. These decisions must be made and executed by Dec. 31 to be counted on a 2008 tax return.
Retirement Savings — While you have until April 15 to make contributions to your IRA for 2008, Dec. 31 is the deadline for contributions to a
401(k) plan and other employer sponsored retirement plans.
New children — If you had or adopted a child in 2008, you need to get a Social Security number for that child as soon as possible to ensure that you can include the child as a dependent on your 2008 return. Also, having or adopting a child in 2008 may mean you will receive a larger recovery rebate credit. You can claim the higher rebate credit when you file your 2008 tax return.
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