Year-end tips to save on 2007 taxes
That's from financial planner Carrie Coghill Kuntz, who wrote a column for Forbes magazine on middle-class millionaires, whom she calls mMillionaires, who are so busy working that they don't focus on finances until year-end. She says there's not too much you can actually accomplish at this point.
"Close your ears and avoid the cacophony of endless, and often pointless, year-end advice. Do nothing but enjoy the holidays with your family – after all, that's why you worked so hard to become an mMillionaire in the first place," she writes.
Solving a big tax problem now is important, of course, but her point is that year-end planning should start on Jan. 1, not Dec. 1. "Planning takes time and thought. Creating and maintaining a coherent financial plan is so important that it can't be crammed into the end of 2007. Quick-fix, year-end tips are simply not a plan."
However, many taxpayers simply can't stand to do NOTHING at this point. For you, here are some ideas from both Jackson Hewitt Tax Service and Grant Thornton:
Lower adjusted gross income: Expenses that can be subtracted from your taxable income include traditional IRAs, Health Savings Account contributions, moving expenses, self-employed health insurance costs and alimony payments. Contributions to a traditional IRA may be made as late as April 15, 2008 to be eligible for deduction in 2007.
Prepay mortgage and taxes: If you make your January 2008 mortgage payment by December 31, 2007, you may be able to claim the interest portion as part of your itemized deductions for 2007. Also, if you make your January 15, 2008 estimated payments to a state or local government before the end of the year, you can claim the payment on your Schedule A, Itemized Deductions for 2007. Note that some of these deductions, which may be deductible for regular tax purposes, may not be deductible for Alternative Minimum Tax purposes.
Prepay college tuition: Paying January 2008 tuition for your college students in December 2007 will increase the amount of tuition you may claim for either Hope or Lifetime Learning credits. The phase-out income limits have been increased for both of these credits for 2007.
Buy an energy-saving vehicle: Tax credits are now available for certain energy-efficient vehicles. If you take delivery of a qualified hybrid or alternative fuel motor vehicle before January 1, 2008, you may claim a tax credit on your 2007 tax return, up to a maximum of $3,400.
Make energy-saving home improvements: The Energy Tax Act provides a credit of up to $500 for qualified energy-efficient home improvements, such as installing a new furnace or energy-efficient windows or doors. Check, however, to make sure your building materials meet the energy efficiency standards described on IRS Form 5695.
Donate, but think first: The charitable giving rules have undergone many changes in the last few years. Obtain the right kinds of documentation if you plan to claim these donations on your tax return. By contributing appreciated property to charity, you may get a charitable contribution deduction for the full value of the property without paying tax on the capital gain. By selling depreciated property and donating the proceeds of the sale to charity, you can claim both a capital loss and a charitable contribution deduction.
Check your new house payment: If you bought a house this year that required private mortgage insurance, you can deduct part of your premiums paid this year if your adjusted gross income is under $100,000 and you itemize. The new Mortgage Insurance Premium Deduction is available for the 2007 tax year only.