We have complied a few simple things you can do before the end of the year to keep your income taxes as low as possible.
Giving to Family and Friends
In 2008 the maximum amount of money you can gift to one person without paying taxes is $12,000. If you are married and have two children who are also married, you and your spouse can each donate $44,000 during each year. This is a great way to pass on your inheritance while you are still alive to see you children benefit from the gifts. Continued...
Max Out Pre-Tax Retirement Plans
Any contributions to a retirement plan will reduce your taxable income. Contributing to your IRA is a popular way to decrease the amount of taxes paid with your tax return. In general, an IRA is a great way to put aside money for retirement. It gives you the opportunity to save money, without paying taxes on it until it's withdrawn, no matter what your income level is. Continued...
Establish a Keogh Plan
You know it is wise to begin saving for your retirement as soon as possible. But with so many different retirement accounts to choose from, where do you begin? If you are self-employed, or a principal in an unincorporated business, one option to consider is a Keogh plan.
A Keogh plan is a retirement plan for the self-employed professional, or the owner of an unincorporated, typically small, business and its employees. Money you place into a Keogh grows tax-free until it is withdrawn. Full-time employees must be included in a Keogh plan if they have worked for the company more than three years. You cannot take money out of your Keogh without a potential tax penalty before you turn 59½ and separate from service.
Make an Extra Mortgage Payment
If you make an extra mortgage payment, the extra interest you pay may be added to this year’s Mortgage Interest by your lender. You should confirm with your lender that the payment will be credited this year and that there are no additional fees for processing an extra payment.
Contribute to a 529 college savings plan (in some states)
A 529 plan, named for a section of the federal tax code, allows you to save for college in a tax-deferred investment. Your withdrawals are tax-free when used for tuition, room and board, and other qualified higher education expenses. There are two types of 529 plans: college savings plans and prepaid college tuition plans. Continued...
Donate to Charity
Charitable contributions are an excellent way to decrease your taxable income. Plus, they help others. Do you have an older vehicle sitting around that nobody uses? Donate it. Older clothes, etc. Be certain you receive a receipt (written acknowledgement) containing the dollar amount of your donation. This will be needed for tax purposes. The IRS does not consider a cancelled check alone as sufficient proof of a donation of $250 or more.
Use Your Flexible Spending Account
If you have funds in your Flexible Spending account, you should use those funds for medical expenses before the end of the year or you may risk losing that money.
Any expense that is considered a deductible medical expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through the Flexible Spending Account.
Some examples include:
* Co-payments on covered expenses
* Prescription drugs or prescription co-pays
* Contact lenses and eyeglasses
* Smoking-cessation programs and prescribed drugs to help nicotine withdrawal
* False teeth, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf
* Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, etc
* Inpatient treatment at a center for alcohol or drug addiction
* Fees in excess of reasonable and customary amounts allowed by your insurance
* Cost of vasectomies, hysterectomies and birth control
* Non-elective cosmetic surgery
Pay Your Property Taxes
New in 2008, homeowners who take the standard deduction instead of itemizing can deduct part of their property taxes. Joint filers can add in up to $1,000 of property taxes paid to the amounts shown above. Singles can add in up to $500 of real estate tax payments.
Buy a House!
If you purchased a primary residence after April 8, 2008, and before July 1, 2009, and are a "first-time" home buyer, you can qualify for a new tax credit for 10% of up to $75,000 of the purchase price. To be eligible, you must not have owned a residence in the U.S. in the previous three years. Nor can the credit be taken if your mortgage is funded with tax-free bonds that states and localities issue to give below-market mortgages.
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