You may not think that you need to pay attention to your taxes until next April, but you're mistaken, Jean says. The end of the year actually marks a time when you can make some smart choices that can save you money come tax season. Jean talks to Tom Ochsenschlager of the American Institute of Certified Public Accountants about what you can do before the New Year to start getting into financial shape and cut your tax bill.
- Accelerate deductions. If you have a mortgage, make the January 2007 payment before the end of the year.
- Harvest losses in your portfolio. Assuming this is the right time to sell, you want to offset your capital gains, so look at your stock investments and weed out any that aren't fruitful.
- Know that the rules have changed regarding flexible spending accounts. You have a little more time after the year-end to use the money, but don't procrastinate!
- If you have stock that has appreciated, the year-end is an excellent opportunity to make a charitable contribution with it.
- Because the standard deduction is so high, you may want to consider a tactic called "bunching." For instance, you can pay for medical expenses all at once so that your medical deductions are higher for the year.
- Defer income if you can, especially if you are a salesperson who works on commission or are subject to bonuses. Have these things paid in January rather than December, so you can lower your income and put yourself in a lower tax bracket.
- Max out your retirement account contributions, if possible.
- Look at the Alternative Minimum Tax very carefully. If you file it, you don't get the exemptions, which can be a very sizeable deduction. To avoid this, don't accelerate deductions—defer them. They are not deductible for AMT purposes, and could throw you in to paying it instead.