Typical strategies for end of year tax planning are based on maximizing deductions for the current year and deferring income into the next year. Some common examples include making charitable contributions prior to year end. This includes donations of money as well as donations in kind. Perhaps this would be a good time to clean out your garage and make a donation of your unused household items or that old car that you don’t need. Pay your mortgage payment due in January the last day or two of December, since mortgage interest is deductible in the year it was paid.
Think of any other deductible expenses you may be facing during the first part of 2008 and consider paying them now. Expenses within your business, repairs to a rental property, and real estate taxes, are all examples of items that you may consider paying a little early to bring the tax deduction into the current year.
Another great strategy is to sell the losing stocks in your portfolio to get those losses in for the current tax year. Of course, only sell off those stocks you were already planning to, as I would not recommend selling solely because of the tax benefit. The other side of this strategy is to sell winning stocks after January 1, pushing off the gain to 2008.
Deferring income, may be a little more difficult to employ. During this time of year if you don’t need the extra cash (unlike most people), you may want to consider deferring income into next year. If you don’t need your bonus or other end of year compensation, you can ask to receive after January 1 to push the tax consequences into next year.
Lastly, check with your payroll office and find out when the cut off is for this year’s retirement plan contributions and how much you can still contribute. It might be a great time to get a few more dollars into your company retirement plan.
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James L. Paris
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