Review New Tax Credits and Deductions

Individuals who have two jobs and Social Security recipients who are working should review their eligibility for the Making Work Pay tax credit. This credit is new for 2009 and was made available to all workers through reduced withholding on paychecks. Some people might end up being slightly under-withheld if they worked at two or more jobs simultaneously. 

Boost Tax Deductible Expenses

Pay your property taxes. Real estate taxes are tax deductible. If your property tax bill is due early next year, you might want to pay it now and take the deduction.

Donate to charity. It pays to be charitable, especially at the end of the year. Donating cash is always a good idea. You can also donate household goods, clothing, and other items. Under the Pension Protection Act, you will need a written receipt for all charitable donations, and donated items must be in good or better condition. You can also deduct the cost of driving for charity at 14 cents per mile. You cannot take a charity deduction, however, for the value of your time or services when volunteering.

Pay doctor bills, insurance premiums, buy eyeglasses, or stock up on prescription medications. You can take a deduction for medical expenses exceeding 7.5% of your adjusted gross income.

Boost business expenses. Business owners and independent contractors can buy office supplies, invest in new equipment, or pay bonuses to their employees. They should also review their retirement plans or decide about setting up a retirement plan. Many retirement plans need to be established by the end of the year if owners want to make tax-deductible contributions for the year. You will want to review what constitutes a legitimate business expense just to make sure it will be tax-deductible.

Organize your financial records. Good record-keeping can really pay off at tax time. Not only will it make your tax preparation easier and faster, but you might uncover enough tax deductions to be able to itemize. More importantly, the IRS will require receipts and other records in the event of an audit. Entrepreneurs should be using accounting software such as Peachtree, QuickBooks, or Microsoft Office Accounting to ensure that all their income and expenses are recorded properly. Individual taxpayers may want to use Microsoft Money or Intuit's Quicken to keep track of their personal spending. As an added bonus, these programs provide reports that summarize your tax deductions for faster tax preparation.

Manage Your Investments

Wait to invest until after the ex-dividend date. Avoid buying mutual funds held in taxable accounts until after their ex-dividend date. You'll avoid paying capital gains tax on the dividend.

Max out your retirement savings. Contributions to a retirement plan reduce your taxable income.

Tax Strategies Beyond Form 1040

Avoid the gift tax by giving $13,000 or less per year per person. Gifts over that amount will reduce your lifetime gift tax exclusion, and gifts over the exclusion will be taxed to the giver. (Giving is a tax strategy used by taxpayers who are facing a potential estate tax bill and need to remove assets from their taxable estate. Taxpayers should be working closely with an experienced tax professional on estate and gift tax issues.)

Estimate Your Taxes