1. Sell losing investments
A lot of folks lost money in the market this year. You can take a loss of up to $3,000 on your 2008 return. Any amount in excess of that must be carried over to your 2009 tax return.
2. Donate to charity
Donate clothes, toys, household goods, other items, or cash before Dec. 31. You’ll lower your taxable income while helping others. Remember that certain charitable contributions are not deductible. These include: Money or property you give to most civic leagues, social and sports clubs, labor unions, many foreign organizations, homeowners associations, political groups or candidates for public office, and individuals. To find a qualified organization go to IRS.gov and search for Publication 78 or call 1-877-829-5500. Also: if you charge your donation on a credit card, it is a valid 2008 deduction so long as it is made by Dec. 31 – even if you don’t pay the bill until 2009. And if you donate cash, there is a new rule that you must now have a bank record or written communication from a charity that indicates name, date and amount of the contribution.
3. Get a special break for helping with to disaster relief in the Midwest
Under the recently passed Heartland Disaster Tax Relief Act, taxpayers who itemize deductions can deduct up to 100% of their adjusted gross income, instead of the normal 50% limit, for qualifying cash contributions toward disaster relief efforts in certain parts of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska or Wisconsin. These contributions do not count toward overall limitations on the amount of itemized deductions. Contributions must be made by Dec. 31. The areas must have been declared federal disaster areas on or after May 20 and before Aug. 1 of this year as a result of severe storms, tornados or flooding, and the areas must have been designated to receive individual assistance from the federal government because of the damage resulting from the disasters. More info at IRS.com
4. Prepay some bills
Another step is to pay your Jan. 1, 2009, mortgage payment by Dec. 31 so it is a part of 2008 taxes, though that means you won’t be able to deduct it for 2009. Also, you can make any real estate tax payments by Dec. 31 that are due the beginning of next year. Also look at medical expenses – if you want to have more deductible expenses for your 2008 return, see if you can squeeze in those doctor or dental visits before the 31st.
5. New real estate tax deduction
There is now an additional standard deduction for those who don’t itemize their deductions, but pay real estate taxes. If you don’t itemize deductions, you can claim up to a $500 deduction for property taxes ($1,000 for joint filers) on your 2008 and 2009 tax returns. If you’re planning any deductible expenses, wait until 2009 to pay for them. That way, you can claim the bigger standard deduction in 2008 and have extra deductions to itemize next year.
6. Check your paycheck withholding
Use the withholdings calculator at the IRS website to make sure that you aren’t having too much money taken out of your paycheck. No sense in loaning your money interest-free to Uncle Sam. Then make the change with your employer. IRS Withholding calculator
7. Maximize your 401(k)
For 2008, the maximum you can contribute to a 401(k) plan is $15,500, while the maximum amount you can contribute to an individual retirement account is $5,000. If you’re 50 or older, you can contribute up to $20,500 to a 401(k) and up to $6,000 to an IRA. Remember that you must make 401(k) contributions by year-end, while you have until April 15, 2009, for your 2008 IRA contribution.
8. Family values
If you had a baby or adopted a child in 2008, you should 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.
9. Check your economic stimulus
If you missed the Oct. 15 deadline for filing an income tax return for a economic stimulus payment, don’t worry. You can receive a payment in 2009 by filing an income tax return when the filing season opens in January. The IRS will have more information shortly. More information
10. First time homebuyers tax credit
There is a new tax credit available for a limited time, under the Housing and Economic Recovery Act of 2008. The credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return. Eligible taxpayers will claim the credit on new IRS Form 5405. The credit applies to primary home purchases between April 9, 2008, and June 30, 2009. First-time homebuyers are defined as those who have not owned a home in the three years prior to a purchase.