Ten Strategies to Cut Your Tax Bill
1. Make your January payment in December. That way, you can deduct the additional month’s interest. Your January payment is for the use of the money in December, and the interest can be deducted if paid and mailed prior to January 1st.
2. Defer Income. Tax rates are decreasing. Collect your bonus in 2007 rather than 2006. If you’re self-employed, try to hold off your billing in December so your income checks come in January. This will carry your income over to the next year.
3. Accelerate expenses. Prepay your tax preparer with a check before December 31st for the return he prepares in the next year. Prepay your Keogh or IRA fee or any other investments expenses.
4. Pay your fourth-quarter real estate taxes before December 31st. Fourth-quarter taxes are due February 1st. If you pay your fourth-quarter tax before December 31st, you will be able to deduct that tax payment one year earlier.
5. Remaining money in your Salary Reduction Plan. These plans are called flexible spending accounts. These accounts require you to reduce your salary by a given amount that goes into a fund that can pay certain benefits, such as medical expenses and dependent care expenses. If you don’t use it, you will lose it. If you have money in this account, spend it! Prepay orthodontia or buy that second pair of glasses, etc.
6. Make charitable contributions. You can make a contribution with cash or charge it on your credit card. Other contributions can include donation of clothes, furniture, or equipment. Make sure to always get a receipt for every contribution you make.
7. Pay estimated state income taxes by December 31st. State taxes are due around January 15th. By paying them by December 31st, you get to deduct the taxes a year earlier.
8. Recognize any capitol losses. Sell non-performing stocks before December 31st. Any losses offset your capital gains first, and the next $3000 of losses can offset ordinary income. Any excess losses are carried forward into your next year.
9. Get married…or divorced. If your marital status is determined as of December 31st, you may qualify for a marriage bonus. If you plan to divorce, make sure it’s done legally and before the end of the year. This may qualify you for some tax savings.
10. Open a Keogh account if you’re self-employed. You can contribute as much as 20% of your net Schedule C income into a Keogh tax-deferred retirement plan, and your contribution is deductible.
