Don't come looking for tax deductions next April when you finally get around to doing your tax return. The time to act is now -- at year's end -- when no one wants to think about taxes. If you want to save tax dollars next spring, here's what you should be doing now:Give Money Away It's the season to be charitable, and charity begins at home. Gifts of cash to family and friends aren't deductible, because they aren't IRS recognized charities -- but those gifts could reduce your ultimate estate tax (depending on when you die). You can give up to $12,000 to any number of people if you care to spread your wealth. One good option: Open a 529 College Savings Account and you can combine up to five years of the annual gift -- for a total of $60,000 -- to grow tax-free over the years to pay for college expenses. (Tip: If you don't have children or grandchildren, open an account anyway in your name, and then you can transfer the tax-free assets for use of a "future child" to pay for college!) Be smart about your giving. If you want to be sure your tax-deductible donation is going to be put to good use, go to
- Prepay your property taxes in December, so you can take a deduction this year. (Most assessor/collectors offices will give you the bill in December.)
- If you pay quarterly estimated taxes, pay your January estimated tax in December to get the deduction this year.
- Pay your January mortgage payment in December to get the interest deduction in 2007
- If you're self-employed, postpone your bonus until January, lowering your taxable income this year, while taking all possible deductions now.
- Prepay January 2008 tuition for your college students in December 2007. This will increase the amount of tuition you can claim for either Hope or Lifetime Learning credits.
- Buy that fuel-efficient car NOW! If you take delivery of a qualified hybrid or alternative fuel motor vehicle before January 1, 2008, you may claim a tax credit on your 2007 tax return, up to a maximum of $3,400. Here's a
link to the government website that shows which cars qualify.
- The Energy Tax Act provides a credit of up to $500 for qualified energy-efficient home improvements, so install the new furnace or energy-efficient windows now.