Tax savings start now
April is a long way off, but there are steps you can take before the end of the year to lower your taxes next spring. Here are some things you can do:
“ Make your January mortgage payment in December (send the check early enough that it clears before the end of the year) to have one more month of deductible interest.
“ Pay your property taxes. Many local governments split the tax into two payments. If your second payment isn’t due until after the first of the year, make it now.
“Make qualifying home improvements — such as doors, windows, solar panels and insulation — and get an energy credit. Unless the law is extended, deductions for energy-efficient upgrades in your home will expire at the end of 2007.
“If you’re in the market for a new vehicle, consider an alternative fuel or hybrid and get a tax credit.
“Take a look at your medical expenses for 2007. You can only deduct the amounts that exceed 7.5 percent of your adjusted gross income. If you’re not at that point and the numbers work in your favor, pay set medical expenses (prescription drugs, payments to the orthodontist, insurance premiums) before the end of the year.
“Charitable donations: Always get a receipt. If it’s too close to the end of the year and you’re afraid a check won’t clear by the end of the year, make a charitable cash donation by credit card. When it comes to items donated, the Internal Revenue Service is very sticky: You can only deduct the fair market value of an item, and it must be in good used condition. If you donate time, you can’t deduct your hourly worth, but you can deduct mileage and expenses. If you donate to non-profits, check IRS Publication 78 to see if the organization qualifies.
“ If you’re due for a bonus at the end of the year, ask if you can have that delayed until after the first of the year to reduce your income.
“Buy tax software now and run your numbers to see where you stand while there’s still time to make adjustments. Remember to keep checking for updates to the software as you get close to filing. There can still be last-minutes changes in the tax code.