Quick Tips for Year-End Tax Savings
Posted by accountingweb on 142
It's not too late to make significant changes to your 2000 tax situation, changes that can affect the amount of tax you owe, or the amount of refund you receive, in April, 2001. Here are several pointers that can help you take control of your taxes before the year ends.
Reschedule deductions. If you expect to owe additional taxes for 2000, you can pull some of what would be your 2001 itemized deductions back into 2000 by making early payments of expenses such as your mortgage (which will provide you with an additional month's interest deduction), or your first quarter state tax estimated payment, or deductible medical bills that you don't owe until January. Turning these expenses into 2000 deductions of course means you will reduce the amount of deductions you will have in 2001, so you should take that into consideration when you make this decision. Sell stock. If you own some stock that has lost money and you have little hope of it rising in value, you may want to consider taking your loss now. Up to $3,000 in losses on sales of stock is deductible in one year. If you sold some stocks at a gain, you can offset the gain with additional losses, in excess of the $3,000. In other words, if you have capital gains of $2,000, you can take a deduction for up to $5,000 in capital loss on your 2000 tax return. Make a retirement contribution. If you own a tax-deferred retirement plan, such as an IRA or a 401(k), and have the opportunity to make a contribution before the end of the year, you can reduce your taxable income by the amount of your contribution. Check the rules and income limitations that apply to these contributions before you write your check to make sure your contribution will be eligible as an income reduction. Contributions for 2000 to IRAs can be made all the way up to April 16, 2001. Change your withholding. You probably still have two or three paychecks coming to you before the end of the year. If it looks like you're going to be getting a fat refund in April, consider changing your withholding on your last few paychecks so that you'll have a little extra cash now instead of waiting until spring to get your refund. You can use that extra money for holiday spending, or tuck it away and let it go to work earning interest or dividends for you right now. Alternatively, if you're going to owe a lot of money on your tax return, consider increasing your withholding before the end of the year to help soften the blow in April. When calculating penalties for taxes that you underpaid, income tax withheld from your paycheck is treated as if it had been withheld evenly over the course of the year, even if the bulk of the withholding occurs in December. Make contributions. This is one of the easiest ways to cut your taxes, if you itemize your deductions. Make contributions to your favorite charity before the end of the year, and take a tax deduction for the amount you contribute. If you're short of cash and don't have the money to make a donation, consider cleaning out the closets, attic, and basement. Donate outgrown clothing, furniture you no longer use, old toys, sports equipment, and other items that are just taking up space. For information on how to value the items you donate, see the Salvation Army's valuation table at http://www.funwithtaxes.com/ValuationTable.htm . Make tuition payments. Consider the timing of school tuition payments for the students in the family. If you qualify for the Hope Scholarship Credit or the lifetime learning credit, and you haven't yet maximized your credit for 2000, consider paying second semester tuition before the end of the year to increase your credit for 2000.