The end of the year is coming. The cold winter months of January and February will bring dreariness, depression, and tax forms! Although the year is almost up, there are still some things you can do to lighten your tax burden or increase your refund for 2008.
Contribute to a retirement plan
Any money you contribute to a qualified retirement plan, such as an IRA, 401(k), 403(b), or any of the similar plans, can be deducted dollar for dollar from your taxable income. And less taxable income means less taxes. If you’re investing through your employer’s plan, you still have time to bump up your contribution amount for the remainder of the year. Even though you probably have only one or two paychecks left in 2008, increasing your retirement contributions could earn you a couple hundred bucks back from Uncle Sam and his Cousin Oliver. You don’t even need to itemize your deductions to take advantage of this. It just comes right off your income. Not to mention, now is a great time to be buying stocks.
Give to charity
Charities are always ready to accept your donations, but there’s no better time than Christmas to clean out your closets and open your checkbook. Like retirement contributions, charitable donations are subtracted from your income, but you’ll need to itemize your deductions to take advantage of this one. Add up all your deductions, and if they’re greater than the standard deduction, you’re making money! Charities always need help, and you can benefit yourself and the charity by giving at this time of year.
Use all the money in your flexible spending account
If your employer offers flexible spending accounts for medical or child care expenses, don’t forget to check your balance. All the money you’ve put into your account is tax-free, and can be used for qualifying expenses. But if you don’t incur the qualifying expense before the end of the year, you’ll lose the remaining balance. Check your balance right now, then plan how you’ll spend that money. (some ideas: get your eyes checked, get your teeth checked, get an end-of-year physical, stock up on over-the-counter medicines.)
Make an extra mortgage payment
Mortgage interest is significant. In the early years of a mortgage, most of the monthly payment is interest. And all of that interest is deductible. If you have a home mortgage, the interest you pay can be itemized and help get your over the standard deduction. So if you make January’s payment a few days early, before the end of the year, you can count that interest too. Of course, the following year you’ll only have eleven payments, unless you try the same trick next December, as well.
We have to pay taxes in this country, but we don’t have to overlook legitimate tax reduction strategies. Make sure you finish the year out right!