Skip to comments.Year-end tax planning checklist includes tips for 2008 tax savings (surviving socialism)
Posted on 12/07/2008 6:44:28 AM PST by RKBA Democrat
We may have a new President-Elect, but taxpayers have only six weeks to make certain moves that will help ensure tax savings when they file in April 2009. According to Bob Trinz, Senior Tax Analyst for the Tax & Accounting business of Thomson Reuters, "Factors that challenge year-end planning include the stock market's swoon, the economic climate, and the strong possibility of tax changes next year. In fact, there might be another economic stimulus package enacted before the end of this year."
"The good news is that Congress has acted to 'patch' the AMT problem for 2008, has retroactively reinstated a number of tax breaks (such as the option to deduct state and local general sales tax instead of state and local income tax and the above-the-line deduction for higher education expenses), and has created new tax breaks that go into effect for the 2008 tax year (including a tax credit for first-time homebuyers, a nonitemizers' deduction for state and local property tax, and a nonitemizers' deduction for certain disaster losses)," says Trinz. Also, for 2008, businesses enjoy tax breaks such as a beefed-up expensing option and a 50 percent bonus first-year depreciation write-off for most machinery and equipment placed into service this year and a reinstated research credit.
If your goal is to lessen your 2008 tax burden, here is a checklist of actions based on current tax rules that Thomson Reuters suggests may help you save tax dollars if you act before year-end:
Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year. Remember to budget for tax-free reimbursements for over-the-counter drugs.
If you become eligible to make health savings account (HSA) contributions in December, you can make a full year's worth of deductible HSA contributions for 2008.
Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later.
Postpone income until 2009 and accelerate deductions into 2008 to lower your 2008 tax bill, which may enable larger deductions, credits, and other tax breaks for 2008 that are phased out over varying levels of adjusted gross income (AGI). These include IRA and Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into Roth IRA, if you're eligible. "Keep in mind that such a conversion will increase your AGI for 2008," advises Trinz.
It may be advantageous to try to arrange with your employer to defer a bonus until 2009.
Consider using a credit card to prepay expenses that can generate deductions for this year.
Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2008. "Many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes."
If you are thinking of making energy saving improvements to your home like extra insulation or energy saving windows, consider postponing installation until 2009. A credit of up to $500 may be available for these improvements if made next year (but not this year).
Substantial tax credits are available for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home.
If you are thinking of buying a hybrid vehicle eligible for a tax credit, check to see if it's eligible for the credit, and, if so, purchase it before year-end.
You may want to settle an insurance or damage claim to maximize your casualty loss deduction this year.
If you are self-employed, be sure to set-up a self-employed retirement plan.
Save gift and estate taxes with gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $12,000 in 2008 to an unlimited number of individuals but you can't carry over unused exclusions from one year to the next.
Consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in (and paying tuition for) job-related courses, etc., to bunch into 2008 miscellaneous itemized deductions subject to the 2%-of-AGI floor.
"These are some of the year-end steps that can be taken to save taxes as of now," says Trinz. "Since there have been a number of recent laws carrying tax changes, be certain to check with your tax professional before making any big decisions."
Bump for later. Thanks!
>>A credit of up to $500 may be available for these improvements if made next year (but not this year). <<
May be? Does someone know for sure?
I’m not a tax advisor or accountant or anything of the sort but aren’t many of these suggestions directed at maximizing this year’s deductions and pushing income into next year when possible. How is this a positive in the face of anticipated tax rate increases next year?
Im not a tax advisor or accountant or anything of the sort but arent many of these suggestions directed at maximizing this years deductions and pushing income into next year when possible. How is this a positive in the face of anticipated tax rate increases next year?
“Im not a tax advisor or accountant or anything of the sort but arent many of these suggestions directed at maximizing this years deductions and pushing income into next year when possible. How is this a positive in the face of anticipated tax rate increases next year?”
It all depends on your personal situation. If you’re facing a significant loss of income next year due to say a pending layoff or retirement, it might well make sense to push income into the future to take advantage of lower marginal tax rates.
Anyone here know what “patch” was applied to AMT? I got slammed last year, and it has affected our lifestyle (had to write a check for $3500, and increase monthly deductions by $300). It was all AMT. It’s like buying a car, except you don’t get anything.
Every year, Congress has to act to raise the minimum income where the AMT applies from some ridiculous amount to a slightly less ridiculous amount. They did so. Unfortunately, though, if you got caught in the AMT last year, chances are you will this year as well.
Us also. The only check we wrote was for AMT.
Is the patch retroactive to 2008?
Exactly. You would defer income if the rates were going to be lower. But if they aren't, conventional wisdom was to try to bring income into the current, presumably lower year. (Now if the future diminishment in income is significant enough that deferred income would still not put you into a taxable income situation or a bracket equal to or higher than the current year, I can see that.)
I was caught with the AMT in 2006...we were unfortunate enough to have $20,000 worth of out of pocket medical expenses and in taking the medical deduction incurred $1200 of more tax due to AMT.
How is this a positive in the face of anticipated tax rate increases next year?
>>Postpone income until 2009 and accelerate deductions into 2008 to lower your 2008 tax bill, which may enable larger deductions, credits, and other tax breaks for 2008 that are phased out over varying levels of adjusted gross income (AGI). These include IRA and Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.<<
This is one I strongly disagree with. Obama is going to raise our taxes so get ready to cut your income for the four years he’ll be in office. Take all you can this year.
Look at this gobbledygook!
Fifteen paragraphs listing all sorts of schemes and plans to pay less taxes.
100% obliterated by passing the Fair Tax or a flat tax.
We are just incredibly stupid.
“100% obliterated by passing the Fair Tax or a flat tax.”
Which has 0% chance of becoming law anytime in the forseeable future. You work with the hand you’re dealt.
Thanks, again. This info was a helpful reminder to me.
*I asked my boss to defer my HUGE (not!) year-end bonus to 2009.
*I’ll put off getting additional new windows and other home energy efficiency items until 2009. Unfortunately, Husband just bought new Energy Star fridge and washing machine this past month. Grrrrr! (I’m going on-line to look for rebates for them, though, anyway.)
*I’m increasing my contribution to my HSA through work next month. That is one slick system; I’d encourage anyone that has it to USE it. :)
*I’m upping my percentage contribution into my 401K plan at work. Now is the time to buy, buy, buy!
*I’m paying of cc debt from a business start-up fast and furiously. That extra cash-flow each month will then go into investments for my future to ensure I’m not a cat food eatin’, Sterno-swillin’ Bag Lady, and a burden on the rest of you. :)
“Take all you can this year.”
Amen to that! :)
Hell, take/keep all you can EVERY year, no matter WHO is President. :)
P.S. Are Cabana Boys considered an ‘expense?” LOL!
Please add me to your list. Thanks!