What's the (tax) plan, Stan?
'Tis the season for holiday shopping, gift giving, cookie baking, excitable children, large credit card bills, and ... tax planning?
It's not too late to benefit from these tax planning strategies:
Contribute to an IRA. The maximum IRA contribution for 2008 is $5,000 if you are under age 50. Non-employed spouses are eligible to make contributions. The deductibility of your contribution begins to phase out when your adjusted gross income reaches $85,000 if you are married, file jointly, and are covered by an employer retirement plan. You can make your IRA contribution up to April 15, 2009, and still deduct it on your 2008 tax return. Contribute to a 529 plan. (This one probably fits right in with your New Year's resolution). Regardless of your income, contributions to Ohio's College Advantage 529 Plan can be deducted on your Ohio Income Tax Return. You can deduct up to $2,000 per beneficiary. Looking for that last-minute gift for nieces and nephews? You can open an account for anyone, even if they're not related. And you can still deduct your contributions. Pre-pay your real estate taxes by December 31 (if you do not pay alternative minimum tax). Typically, these taxes are due in January and July. Making your January payment in December will increase your itemized deductions for 2008. If you will be required to pay AMT with your 2008 return, be sure to make your real estate tax payment AFTER the first of the year. Tax laws relating to AMT change annually. Maybe there will be hope for next year! You do not benefit from real estate tax deductions under AMT. You might also consider pre-paying (by December 31) state and local estimated taxes that are normally due January 15 (if you do not pay AMT). Defer a bonus into next year. The general idea here is to postpone income until 2009 and accelerate deductions into 2008. This strategy may enable you to claim 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 also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note that in some cases, it may pay to actually accelerate income into 2008. For example, this may be the case when a person's marginal tax rate is much lower this year than it will be next year. Bunch" your miscellaneous itemized deductions. Miscellaneous itemized deductions are subject to the 2 percent of AGI floor. That means that your miscellaneous itemized deductions must be in excess of 2 percent of your AGI before they are deductible. And even then, only the amount above 2 percent is deductible. Consider pre-paying for subscriptions, professional or union dues, or professional education courses.
You can also utilize the above bunching strategy with your medical expenses or other itemized deductions.
Taking some time to examine your tax situation before the calendar turns could lead to the greatest "gift" you'll receive in 2009: A tax refund.