Make moves now to lower next year's tax bill
The past few years have been fraught with so much uncertainty about income tax rates, estate taxes and expiring deductions that planning wasn't easy. A year ago, for instance, Congress waited so long to act on expiring tax breaks that the IRS couldn't update all its systems in time for the start of the tax season. Millions of taxpayers had to wait until February to get their returns processed.
"It was a tumultuous year, as many of them seem to be," says Mark Steber, chief tax officer with Jackson Hewitt Tax Service.
But — cross your fingers — there isn't any legislation on the horizon that's expected to gum up tax strategizing this year.
Even so, you can't assume your return will be similar to the last one you filed, Steber says, especially if you underwent a major life change. You should review deductions and credits to see if you might qualify for them now even if you didn't before.
For example, if you lost your job or found a new one paying much less, Steber says, your income might be low enough that you're eligible for certain deductions.
Here are some tax moves to consider before the end of the year.
Charitable giving( Baltimore Sun photo by Jed Kirschbaum / November 28, 2008 )
You can deduct donations if you file an itemized return. It doesnt have to be cash.
Its a great time to clear out closets and cabinets to get rid of stuff in good condition that you dont use anymore and get a deduction, says Jennifer Rempe, lead tax research analyst with the Tax Institute at H&R Block.
This is an especially good year for high-income households to make charitable donations, Labant says. Previously, charitable deductions were reduced as income went up, she says, but this year there is no phase-out for high earners.
But, tax experts warn, the IRS is watching to make sure donors have the proper documentation.
For small donations cash and property you will need a bank statement or a written receipt that shows the name of the charity, date of the gift and amount. Donations of $250 and up require a letter from the charity acknowledging the gift. And for property donations of more than $5,000, you generally need an appraisal.