Saturday, November 29, 2008

More Year End Planning Part 2

I always view Thanksgiving as a time for family getting together and being thankful for all of our blessings, and the start of the Christmas season when spending money on gifts becomes a priority. It is also a good time to do some end of the year tax planning so that we don't get any surprises when we file our tax returns.

Get organized: The first step in the planning process is to make sure your records are organized and up to date. Without records and without substantiating your deductions, you have no deductions.

Defer income into the new year: If you are scheduled to receive a bonus ask to receive it in January so that the additional income is not included in your 2008 AGI. For the self-employed, sending invoices out late in December could make it more likely you'll receive payment in the new year.

Check on capital gains and losses: It's important to find out whether you might have capital gains to report. A lot of mutual funds have been forced to sell assets as investors bailed out of the market. So despite the fact that the fund probably posted losses, investors might be receiving a capital gains distribution. In addition, you might want to consider selling some holdings that have lost value as the market tanked to offset any capital gains. Current law allows investors to claim up to $3,000 in short term capital losses.

Determine whether you're subject to AMT: The Alternative Minimum Tax, which was designed to make sure that high-income earners with multiple deductions pay at least some tax, now captures many upper middle-class workers because it is not indexed to inflation. So if you live in a state such as New York this is something you should be concerned about. Congress included a measure to adjust the AMT so that most people are exempt in the bailout bill, but figuring out whether you need to pay can still be a complicated task that might require help from a tax adviser.

Boost your charitable deductions: Any check written or item donated before Dec. 31 can be deducted. So if you haven't done this yet, clean out your closets and donate those old suits, dresses and other items that you aren't wearing any more as well as any furniture to charity. Since many organizations are also feeling pinched by the economic downturn. If you don't have much credit card debt, you can charge a donation before the end of the year and pay it off in 2009.

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