December 31st Is The Last Day for Most Tax Planning Strategies

Just a reminder that 2008 will be over in less than two weeks, and that means that your opportunity to reduce your 2008 taxes is coming to an end soon as well.  Most tax planning strategies must be implemented before the end of the year to reduce the current year’s taxes.  There are a few exceptions (funding your IRA for example), but for the most part, once the tax year is over, it’s too late to reduce your taxes for that year.

There have been many changes to the tax law this year so you may not even be aware of all the tax credits and deductions that you may qualify for.  Here are some tax planning strategies that you may be able to take advantage of before the year ends:

Real Estate Tax Deduction — New for 2008, there is an additional standard deduction for those who don’t itemize their deductions, but who pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid up to $500 for single filers or up to $1,000 for joint filers. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.

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Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Not many people are aware of the saver’s credit, which helps offset part of the first $2,000 that taxpayers contribute to IRAs , Roth IRAs, 401K and other retirement plans.  This credit is also known as the retirement savings contributions credit.

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

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Max Out Your Retirement Plan (Year-End Tax Tips)

One of the most common tax planning strategies is to max out your contributions to your retirement plans to reduce your taxable income.

For IRAs, you have until the tax filing deadline (April 15) to do this, but for 401K, 403B and other employer sponsored retirement plans, you have to do this by the end of the calendar year.

The maximum amount you can contribute to 401K, 403B and 457 plans is $15,500 in 2008 (in 2009 you’ll get to contribute an extra $1,000 as the limit is increasing to $16,500).

You may be wondering if you should contribute more to your retirement plan given the stock market this year.  Actually, since stock and mutual fund prices are off by an average of 40% this year, you should be contributing to your retirement accounts.  Remember ‘buy low, sell high’?  Well now is a great time to buy low.

So not only can maxing out your retirement plan be a great tax planning strategy, for this year, it’s also a great investing strategy.