2008 is winding down but you still may be able to save money on your income taxes if you make the right moves before the end of this year.
Contributing to charity organization is a wonderful way to get a tax deduction. Plus you control the timing. You can increase the tax benefits of your gift by donating appreciated stock or property rather than just cash.
A key tax advantage is … as long as you’ve owned the asset for more than one year, you get a double tax benefit from the donation. You can then deduct the market value on the date of the gift and you avoid forever paying capital gains tax on the appreciation that built up while you owned the asset. The charity you choose can help you with the details.
Remember that you must have either a receipt or canceled check to support any contribution, regardless of the amount. If you don’t have any written record, the IRS will reject the write-off if the lack of proper record keeping is discovered in an audit. Not that the old tax rule that you only needed to have a receipt to back up contributions of $250 or more is long gone.
Accelerating payment of deductible expenses due in January can pull the write-offs into 2008. This option applies to an estimated state income tax bill due Jan. 15, for example, or a property tax bill due early in the next year. This also holds true for a doctors or hospital bill. It’s important to know that speeding up deductions could be a blunder if you are subject to the Alternative Minimum Tax, as discussed below.
Now before you race off looking for tax deductions, make sure that you will be itemizing for 2008 rather than claiming the standard deduction. Unless the total of your qualifying expenses exceeds $5,450, if single, or $10,900 if you’re married and will file a joint return, itemizing would be a big mistake. Single filers who pay property taxes, can add up to another $500, and joint filers can add up to $1,000, of real estate tax payments to their threshold.
If you are on the itemize-or-not borderline, your year-end strategy should focus on bunching. This is the practice of timing expenses to produce lean and fat years. In one year, you cram in as many deductible expenses as possible, using the tactics outlined above. The goal is to surpass the standard-deduction amount and claim a larger write-off.
In alternating years, you skimp on deductible expenses to hold them below the standard deduction amount – because you get credit for the full standard deduction regardless of how much you actually spend. In the lean years, year-end plans stress pushing as many deductible expenses as possible into the following fat year when they’ll have some value.
{ 0 comments… add one now }