Monday, December 29, 2008

6 Last minute tax moves

Before you dance on the grave of 2008 and welcome in a new year along with a potential at financial recovery there are a few things you can do to lessen the pain that comes in April. But act quickly because you need to take care of this list before the clock strikes minute on December 31st, otherwise you might loose a glass slipper. Most of this comes from

#1 Dump your loser stocks

Yep it hasn't been fun watching your investments plummet. You can sell your losers and offset as much as $3,000 in ordinary income for 2008. Anything exceeding $3,000 can be applied, first, to offset 2009 capital gains and then to offset ordinary income in 2009.
But remember: To get the tax treatment, sell by Dec. 31. If your losses are inside a retirement account, you can't deduct them.

#2 Help out the Non-profits

Charities appreciate your minute contributions. So if you've been thinking about it, do it before Dec. 31. And, before filing your tax return, make sure you have receipts from the organizations that benefited from your generosity.

To deduct a cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing its name and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

If you don't have the cash, you could even make a donation by credit card. It sounds crazy, but it could help you on the 2008 return. Or, if you could donate clothes or household goods must be in good condition or better to qualify for a deduction. If a single item has a value of $500 or more, you will need an appraisal. So donating your car to public radio might need a bit more documentation than the clothing drop-off to Goodwill.

#3 Don't forget your Flexible Spending Account

Okay, I'll admit this doesn't really have anything to do with your taxes but don't forget to use and report the dollars you spent toward your Flex Account. The IRS allows purchases made through March 15, 2009, to count. Be careful, however. The IRS may allow the extended March 15 date, but, unless your employer's plan is amended to allow it, you won't qualify.

#4 Mortgage interest
Make your January mortgage payment by Dec. 31. Send in a check or pay it online.
Remember to add the interest you paid to what your bank reports on its Form 1098. Your bank will get your payment in 2009 and won't report it for 2008. But because you paid it this year, it adds to your 2008 deduction. Of course, is that you won't be able to deduct the payment from your 2009 return.

#5 Real-estate taxes
If you pay your own real-estate taxes, make any payments due in the beginning of 2009 by Dec. 31. Note: Taxes aren't allowed as a deduction under the alternative-minimum-tax computation. If you expect to get hit by the AMT, don't prepay.

#6 Medical and miscellaneous deductions
Prepay your orthodontist or your tax preparer. Send in your payment either online or via the U.S. mail by Dec. 31. Remember only those medical expenses in excess of 7.5% of your Adjusted Gross Income count. Health insurance premiums count so long as you're not paying them out of a flexible spending account.

Miscellaneous itemized expenses have to exceed 2% of your Adjusted Gross Income to qualify.

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