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.

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

Subscribe to EbizTaxTips.com

Attn: Online Business Owners! Do you want to learn how to minimize your online business taxes?

My free report '5 Tax Saving Tips for Ebiz Owners' includes tips to help you get all the deductions and credits you're entitled to, so you don't overpay Uncle Sam!

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.

Merry Taxes 2007!

The 25th Tax Carnival: Merry Taxes 2007 is up at Don’t Mess With Taxes.

As I mentioned in my year end tax tips post, now is the time to do tax planning to reduce your 2007 tax bill.  Kay continues this theme in the 25th tax carnival…

"
To paraphrase a beloved seasonal song, it’s the most wonderful tax time of the year!

That’s right. During this time of gift giving, make sure you get the best present of all — a lower 2007 tax bill.

If you wait until April to ask what you can do to lower your tax bill, the answer will be not very much!

But if you consider your tax situation and options now, before
the tax year is over, you still have a chance to keep money in your
pocket instead of putting it in Uncle Sam’s grasping hands.

Heck, you might even be able to save enough to pay off your post-Christmas credit card bills! So let’s get right to our holiday edition of Merry Taxes 2007!"

Click here to continue reading and to see my own contribution to the tax carnival!

Year end tax tips for home businesses

Someone recently asked me what they could do now to make tax time easier for this upcoming tax season.

The best thing you can do is to think about taxes before then year ends.  Most people wait until the tax filing deadline before they ask how they can reduce their income taxes.  Unfortunately, once 2007 ends, there’s very little you can do to minimize your taxes for 2007. 

To start your tax planning, you should review your income, deductions and withholdings before the year ends.  Which means you need to get your bookkeeping caught up!  You should use a software program, such as QuickBooks, Quicken Home and Business, or spreadsheets to keep track of your income and expenses for your business.

Once you’re bookkeeping is caught up… do you expect your home business to have a profit or a loss this year? 

If you have a profit, here are some tax planning tips to help minimize your home business taxes this year:

1.  Defer your income.  If you have a home based business and it looks like you’ll have a good profit this year, consider invoicing your clients in January instead of December, to defer the income to next year.  Or, just wait until the end of December to send invoices.  Any money you receive in January will go on your 2008 tax return, not 2007. 

2.  Accelerate expenses.  Do you need to purchase any inventory?  What about supplies?  Does your computer need to be replaced?  If you’ve got a profit for 2007, consider purchasing inventory, supplies or other items that will need to be replaced soon this year to reduce your taxable profit. 

In addition, if you itemize your tax deductions, make sure you pay all mortgage payments, property tax, medical expenses, etc. this year, even if they aren’t due til next year, to help increase your tax deductions for this year.

3.  Contribute the maximum amount to retirement plans.  As a home based business owner, you have several retirement plans to choose from.  You can setup a traditional IRA, a SEP IRA, a Simple IRA, or even a 401K.  The maximum contribution amounts vary based on the retirement plan, but these plans allow contributions from $4,000 up to $44,000 per year.  Contributing to a retirement plan is a great way to maximize your retirement savings and to minimize your taxes at the same time.

4. Give to charity.  Although charitable donations don’t reduce your business income, they do reduce your taxable income if you itemize your deductions.  Gifts of cash or goods are a great way to help reduce your tax bill this year. 

On the flip side, if you expect a larger profit next year, or if you expect to jump into a higher tax bracket next year, it’s best to report as much income this year, and to defer as many expenses as possible til next year.

Either way, year end tax planning can really help minimize your taxes.  But you have to make it a point to review your taxes before the year ends.  Once 2007 is gone, so are your tax planning opportunities for 2007.