Tax Moves to Make Before the New Year
Tax season may be a couple months away, but in order to make sure you don’t pay Uncle Sam more than you owe, there are certain tax moves you need to make before the new year.
Tracy Coenen, our resident tax expert, has some tips:
It sounds obvious, but make sure your name is the same on all documents. You can update your name with the Social Security Administration so that it matches on everything you file, including W-2s, 1099s and your tax return. If your name doesn’t match on everything – even if it’s off by a middle initial – you risk having your refunds delayed.
Plan and max out your retirement contribution as well, Coenen says. Contributions to traditional IRAs and Roth IRAs can be made until April 15, 2009, so you don’t necessarily have to put that money in before the end of the year. (You can consider contributing a small amount each month between now and April.)
You probably already have a 401(k) through work, but have you considered adding a Roth IRA in addition? Coenen recommends it as a way to save more on your taxes, adding that you should max it out if possible.
If you itemize your deduction, make a charitable contribution. It makes you feel good and also takes a bite out of the tax bill, as you can deduct charitable gifts that make up to 50% of your income. Just make sure you get a receipt for everything you contribute, no matter how small, Coenen says.
See if your medical expenses are eligible for an itemized deduction as well. If the costs for the year are high enough that you benefit from them as an itemized deduction, consider what other costs you could incur before the end of the year to increase that deduction (for example, if you were going to get new glasses in the spring, get them now.) To receive a benefit from medical expenses as an itemized deduction, they have to exceed 7.5% of your income. That’s high for a lot of people – but if you think you may exceed that threshold, it makes sense to spend on other medical procedures or purchases that you otherwise might have waited for until 2009.
>>Watch Friday's WEB EXTRA for three more exclusive tax tips