NEW YORK (12/17/08)--Although many time-honored tax planning strategies still work for many people, this year may be a bit trickier because of recent stock market woes (The Wall Street Journal Dec. 3).
It's estimated that there have been more than 500 changes to the Internal Revenue Code this year, and it's possible another economic stimulus package may contain even more. But that's not a reason to procrastinate--some advice may be worth heeding sooner rather than later. Visit with your financial and tax professionals about the implications of these actions:
Consider taking the standard deduction. A new tax law stipulates that even if you claim the standard deduction for 2008, you can take an additional amount to reflect real-estate taxes. This means that some people who itemized in the past may be better off taking the standard deduction, depending on their situation. If you choose this route, you also may be better off deferring charitable donations and state and local taxes into next year, when you might again choose to itemize.
Watch out for AMT. If you're trapped by the alternative minimum tax (ATM), this may be another situation in which you're better off not prepaying your state and local taxes due in early 2009.
Dump losers. If some of your investments suffered significant losses, consider getting rid of them before December 31. Those losses may turn into valuable tax savings.
Put excess RMD into IRA. If you're receiving distributions from your qualified retirement plan, consider rolling over the entire balance—or your distributions in excess of any required minimum distribution (RMD)—into an individual retirement account (Meridian Star Nov. 23). To avoid paying taxes on those distributions, though, you must do this as custodian to custodian, or within 60 days, and there may be restrictions or limitations. Speak with a financial adviser to see if this strategy is right for you.
Gift without the gift tax. This year, you can give up to $12,000 (per donor, per recipient) without triggering gift taxes. Next year, the gift tax exclusion increases to $13,000.
Set aside college funds. Take advantage of a law that lets you give a single contribution—covering five years—to a 529 college savings plan. For example, you can give a maximum of $60,000—or five years of gifting—per recipient tax-free in one year.
Hire a good accountant. The money you save by hiring a smart professional likely will be more than the price you pay for tax preparation. And you're likely to be that much further ahead for next year.
For more information, listen to, "Choosing Your Tax Preparer and Volunteer Income Tax Assistance Program (VITA)" in Home & Family Finance Resource Center.
courtesy of cuna.org