With 2008 right around the corner, now is a good time to get your finances in order.
There's still time to take advantage of ways to save yourself money on 2007 taxes and to get yourself in good habits for the coming year and beyond.
Here are some things to consider:
Flexible spending accounts
: If you participate in your company's flexible spending account programs for medical expenses or dependant care, check to see if you have a remaining balance in the account and make sure you use up any of this money. While flexible spending accounts have the excellent tax advantage of letting you pay for these expenses with pretax dollars, any money that is not used by the end of the year will be forfeited, which can easily negate these advantages. For example, if you still have money in your flexible medical account, there are a
wide variety of items that you can purchase -- such as over-the-counter drugs -- rather than lose the money.
: If you will be itemizing your taxes for 2007, it's a good time to make charitable contributions for a tax writeoff. When making these contributions, think beyond money. If you have stock that has appreciated in value, the appreciated stock may be a wiser choice to donate since you will receive a tax deduction for the market value of the stock
while avoiding paying the capital gains taxes associated with selling the stock. It can also be a good time to do a pre-new year's clean-up around the house and donate any items you no longer need to such charities as Good Will or the Salvation Army for the tax writeoff.
Max out your 401(k)
: If your employer offers a 401(k) plan that you participate in, check to see how much you have contributed for the year. The maximum 401(k) plan contribution for 2007 limit is $15,500 if you are under 50, with a catch up contribution limit of $5,000 if you are over 50. If your employer matches up to a certain percentage, make sure that you have at least contributed enough to receive these matching funds. If you still have plenty of room to contribute, contact the personnel department to see if it is possible to make a one-time contribution toward your account. At the same time, adjust your monthly contributions to make sure you take full advantage of this retirement vehicle next year.
: If your health insurance plan has an annual deductible that you have already reached, consider whether it's possible to receive any medical treatment you may need before the beginning of the New Year. This can be especially important if your medical expenses vary widely from year to year. On the same note, if you have not reached your annual deductible, it may be wise to delay medical treatment you may have planned until after Dec. 31. If you itemize your taxes, you can also deduct medical expenses, but it has to be more than 7.5% of adjusted gross income to qualify. Keep this in mind when deciding whether it is better to get treatment before or after new year's day.
Go green at home
: There are a number of environmentally friendly upgrades that you can make to your home, including installing energy efficient windows, doors, roofing, insulation, water heaters and more, that need to be made by Dec. 31 to qualify for a
tax credit. If you need to do some home improvements, incorporating some of these energy efficient systems into you home before the end of the year will help reduce your taxes and, even better, lower your energy bills in the future.
Go green driving
: There are tax credits worth $250 to $3,000 still available for purchasing certain hybrid cars if you are in the market for one. This tax credit phases out for the fuel-efficient vehicles once a carmaker sells 60,000 hybrids. Toyota was the first carmaker to hit this mark and the tax credits for Toyota and Lexus hybrids are no longer available. Honda reached 60,000 cars this fall. While you can get the full tax credit if you purchase a qualifying Honda hybrid before Jan. 1, the credit will be cut in half for purchases made in the new year. You can see all the hybrid cars that still qualify for this tax credit at the
IRS Web site.
: If you will receive a bonus this year, take the time to estimate whether it will be better to receive that money this year or next year for tax purposes. If you anticipate that your tax rate will stay the same, see if it is possible for your employer to delay payment until after Dec. 31. While you will still have to pay taxes on this income, by receiving it in January you delay these taxes for a year, which allows the money that would have gone to the IRS in April 2008 to earn interest for a year.
: Take a look at your stock portfolio and determine if there are any losing stocks that need to be tossed because you believe they are not going to rebound. If there are, you can use these losses to offset taxable gains from other investments. If you had some really bad losing stocks, you can also use up to $3,000 of these losses to reduce your taxable ordinary income for 2007. If you have a loss in excess of that amount, you can carry it over to future tax years.
Make 529 plan contributions
: If you have set up 529 college saving plans for your children, contributions need to be made by Dec. 31 to qualify toward this year. This can be important, since 529 contributions are subject to the annual gift tax exclusion of $12,000 per individual for 2007.
Give away money
: You are allowed to give away up to $12,000 each year to any individual without having to pay a gift tax. If you believe that someday you might be subject to the estate tax, giving away the money tax free can be a much better way to distribute it. But you are limited in the amount that you can give away each year, so if you don't do it before Jan. 1, you can't carry it over and give away more next year.
While the end of the year is always a busy time, it's worthwhile to take some time to evaluate ways to put some extra money in your pockets come 2008.
Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.