10 LAST-MINUTE TAX MOVES FOR THE YEAR

It’s almost New Year’s , and you have a lot to do to lower your tax bill. Here are the 10 most important things you can do right now.

The end of this year and the beginning of the New Year are almost here. Taxes shouldn’t be on your mind just now, but they really have to be. This is your last chance. Yes, you get lower tax rates, a bigger child tax credit and some other goodies in the new tax law, but there’s more you can do and should do. Once you slide into , there’s not much you can do to reduce your taxes. So, here’s a list of what has to be done now.

1. Get Generous

Now is the time to make those last-minute charitable contributions.

Low on cash? You can charge a contribution on your credit card and deduct it in the year of the charge, even if you actually pay your bill next year.

Used up your credit line? Empty your closets and visit the Salvation Army. The value of non-cash contributions also can be deducted. Make sure you get receipts. If you’re audited, no receipt means no deduction. Use the price lists in the MISCELLANEOUS: menu on the left to determine the value of your non-cash contributions. Don’t forget to print a copy of the price list(s) that you use for your records.

2. Bulk Up That Retirement Nest Egg

If you’re contributing to a 401(k) or related retirement plan, always contribute at least the amount that’s matched by your employer. Even if you have to borrow to pay your other expenses, a 100% match is an immediate 100% return on your money. Even credit card companies don’t charge that much.

If you can, put the maximum the law allows into your retirement fund. This year you can shelter more than $12,000 in a 401(k) and more than $3,000 in an IRA.

If you’re age 55 or older, you can sock away another $2,000 in your 401(k) and another $500 in your IRA as “catch-up” contributions. Congress figured you have only 10 or less years to age 65 retirement, and it wanted you to be able to build up your fund of tax-advantaged dollars.

If you’re self-employed and want to contribute to a Keogh Plan (such as a profit sharing or money purchase plans), you must establish that plan by December 31. You’ll have until the due date of your return, including extensions, to fund the plan. But, it must be set up by the end of , or you get no deduction.

3. Empty Your Flexible Spending Account

These are “use it or lose it” accounts. If the money isn’t spent by the end of the year, you lose it.

So that means it’s time for new glasses or contacts, or for laser surgery to repair your vision. Prepay your orthodontist. Stock up on drugs. (Take that smile off your face!) A new IRS ruling this year allows you to use your FSA for non-prescription drugs. If your employer sets it up, you can even use a debit card to make your purchases. Makes the paperwork a lot simpler.

4. Review Your Investments

Sell your losers now. Use that loss to offset your capital gains or as much as $3,000 in other income. Any excess losses are carried forward to future years.

This year, you may actually have capital gains. Don’t forget to claim any unused losses from prior years on this year’s return.

5. Consider a Municipal Bond Swap

That’s where municipal bonds in your portfolio that have gone down in value are sold. They are then replaced with other municipal bonds of like quality, coupon, par value and yield.

Done right, you get equal or greater income with equivalent quality and maturity. You also get a tax deduction for the loss on your sale. Sounds like a good deal to me.

6. Accelerate Your Mortgage Interest Payment

Make your January mortgage payment on December 31. Use an amortization program to compute the added interest you paid. The ReesNet Financial Calculator (also available in the CALCULATORS: menu on the left) is ideal for this purpose, since you can also print the mortgage schedule itself.

That payment won’t be received by your bank until . So, the 1098 the lender will send you for won’t include your extra payment. You should add that amount to line 11 on your Schedule A.

7. Accelerate Your Real Estate Tax Payment

If you’re paying your own real estate taxes, in many cases, your fourth-quarter tax is due early in . In many states, you can also prepay next year’s taxes.

By paying by December 31, you’ve taken the deduction a year earlier. The tax saving is the equivalent of an interest-free loan from the IRS in perpetuity. But, beware the Alternative Minimum Tax (AMT). Taxes that are deducted increase your exposure to this special tax. Never accelerate tax payments if you’re going to be hit by the AMT. If you think this is a possibility, check with a tax professional now. Please also read 5 Ways to Beat the Alternative Minimum Tax on this web site.

8. Accelerate Your State Income Tax Payment

Your fourth-quarter estimated state income tax is normally due by January 15. Pay it half a month earlier, and you get the deduction a whole year earlier.

If you’re going to be in a lower tax bracket next year, consider overpaying your state income tax. You’ll get the deduction in and any payments in excess of your actual tax (your state refund or credit for ) will be income in . You’ll not only get the time value of the money, but the difference in the tax rates as well.

But don’t forget that AMT trap I already mentioned. The AMT is expected to hit as many as 2.9 million people this year, more than double the number affected in 2000.

9. Invest in Your Kid’s Future

Contribute into a Coverdell Education Account or Section 529 College Savings Plan for your kid’s or even your own school expenses.

Withdrawals from these tax-advantaged accounts for qualified educational expenses can come out tax free. You can use Coverdell dollars for pre-college expenses as well.

10. Keep an Eye on the Floor

Some expenses have to exceed a minimum floor before they are allowed as deductions. Medical expenses have to exceed 7.5% of your Adjusted Gross Income (AGI) and Miscellaneous Itemized expenses have to exceed 2% of your AGI.

Make the calculations now. If you exceed these floors, accelerate your expenses. Prepay your doctor/dentist for ’s work. Prepay a month’s worth of health insurance. Buy a computer and printer if they’re to be used for business or investment purposes.

Renew and pay for your investment, business, and professional subscriptions. Technically, the IRS frowns on multiple year renewals deducted in a single year. But, you should be safe with a one-year renewal.

I do tax returns. How I would love them to send me a check on December 31! They deduct the payment in . I receive and report the income in .

If you don’t see yourself beating these floors, stop spending! Hold off your expenses until January. You might be able to exceed the minimums in .

If you’re self employed, the 2% floor doesn’t apply to you. Your deductions are allowed “above the line.” That means you can get them in addition to the Standard Deduction (or your itemized deductions if greater). That means stock up on supplies and other allowable business deductions now!

Look, it’s your money. Tax planning takes effort and time. But the rewards are more tax free dollars in your pockets. It’s time well invested. But, it’s time running out.