Year-End Tax Tips
Show #320 Airing Sunday, 11/27/05
One good thing about autumn is that you can stop cutting your lawn. Fall is the right season for cutting something else—your taxes. There are steps you can take now, while the leaves disappear, to save money in April when the bulbs pop out. Here to explain is the well-seasoned Tony Mercuri from Ta-Check Tax Service.
Question: The year is almost over, and that means the taxman is coming. You’ve made a list of tips that we might consider at year’s end to save some money. First on the list is to Pre-Pay Real Estate Taxes.
Answer: Real estate taxes are deductible. Though they’re not due until mid-January, you can pay now and get the deduction for this year, in April. If you wait until January to pay, you won’t get the deduction until April 2007!
Many people are on the borderline as to whether they itemize or take the standard deduction. Oftentimes, this means we tell them to rotate from year to year. Paying next year’s real estate taxes this year would allow you to receive a tremendous tax break.
Question: It’s the holiday season, so let’s move on to Charitable Donations.
Answer: Start that New Year’s resolution of organizing and cleaning the house a little early—I am doing it now myself. Make several charitable donations before the end of the year. Remember these first 2 items need to be done by December 31st in order for you to receive a tax benefit. Give away old clothes and household goods as opposed to throwing them out or trying to sell them at a garage sale.
Question: How do you determine the value of the donations?
Answer: Use “thrift shop value,” e.g., Salvation Army has a list I can send. Or comparative sales: Go to thrift stores to compare prices. Get a receipt, you write value. (The IRS will get suspicious if you have donations greater than your net worth)!
Question: What about Cleaning Up Your Investment Portfolio?
Answer: That is another great idea. If you have any investment that is down in value and you are considering a change, sell it now. If you sell before the end of the year, you can take it as an actual loss on your tax return, or at least offset some gains you may have received from other investments. Either way, this helps you lower your taxes.
Question: Next is Take a Close Look at Your Government Bonds.
Answer: If you have some EE bonds you want to cash in, only cash a portion of them now and wait a month to cash in the rest. This will spread the tax hit out over the next 2 years. Since we are so close to the end of the year, this is a great time to do this strategy. Also, as you cash in bonds for future years, try to continue with this strategy because it will help minimize the taxable interest you will be paying tax on.
Question: Finally, are there any other strategies?
Answer: This last one may be a bit confusing to some, but if you are going to get hit with the Alternative Minimum Tax, you may consider pushing some of your deductions into the following year since you may not be able to use all of your deductions this year. This is basically the opposite of what I just told you, but for those of you that qualify for this, it can be helpful.
The new year can bring new, lower taxes, if you follow Tony’s advice. For more tax-cutting tips, give Ta-Check a call.
