Since the New Year starts next week, you’ve got just a couple more days to take some steps to reduce your 2007 taxes. These tactics will lower your realized income so that you can reduce your overall tax bill come spring using financial budgeting software. Not all of these steps are going to work for all people, but in general, here are the 6 big end-of-the-year tax trimming ideas:
Give to Charity. If you have a favorite charity, giving money (backed by a receipt or canceled check) is considered a deductible item to reduce your taxable income. You can also deduct the fair market value of donated items you own, such as a used car or stuff around the house.
Maximize Your Retirement Account. If you can afford it, there’s no better way to reduce your tax bill than by contributing as much as you can into your retirement account. The maximum allowable 401k contribution for 2007 is $15,500 or $20,500 if you’re 50 or over. For traditional IRA contributions, the maximum you can contribute this year is $4,000 or $5,000 if you’re 50 or over.
Sell Your Losers. If you own stocks and have ridden the highs and lows of the stock market, selling your losers and donating your winners can help offset some of the tax man’s bite. If your once high-soaring stock decided to head south for the winter, consider selling it now to qualify for capital losses (you can always purchase it back, but not before 30 days). With this method, you can deduct up to $3,000 in losses from your gross income.
Donate Your Winners. With losers come some winners; that’s the hope at least. If you’re so fortunate, you can donate a portion of your appreciated assets to charity. You would avoid capital gains and be able to deduct the full amount of the donation. If you purchased stock worth $1,000 and it’s now priced at $1,500, you can avoid the capital gains of $500 (if you chose to sell it) and deduct the entire $1,500 from your income. By avoiding taxes and maximizing your tax deduction, it’s almost like government is matching your donation – well, almost.
Leverage Your Home. If you’re a homeowner, you have several options to make additional deductions. If you have a property tax bill due in early 2008, consider paying it in 2007 to increase your deductions. You can also pay your January ’08 mortgage, with the interest paid counting toward beefing up your deductions.
Get Organized. Knowing your options means knowing how much you’ve spent, donated, and earned. Mint.com financial budgeting software can help you organize your transactions and simplify your end of year tax planning. Mint auto-categorizes every transaction and allows you to manually re-categorize if need be. You can also view reports by category for the entire year.
Reducing your taxes is all about being smart with what you do with your money, and knowing where you stand is the first step in determining where you’re going. Your wallet will appreciate it when the Tax Man comes.