More fourth-quarter moves
that can trim your April tax bill
By Cora M. Barnhart • Bankrate.com

November opens the door to thoughts of football, family, and ... federal income taxes? While it may not fit in with the traditional picture of holiday get-togethers with families and loved ones, organized taxpayers understand that the next few weeks offer the last chance to reduce April's tax bite.

Last week's tip described some defensive plays taxpayers can execute to protect income. This week's tip focuses on two tax moves that homeowners should make right away concerning property taxes and mortgage payments. Future tips will describe strategies for using retirement and charitable gifts as defensive coverage against taxes.

Strategy One: Pay local taxes
No one looks forward to paying property taxes. However, some quick moves now with state and local taxes can provide some federal tax relief next April.

Homeowners who make estimated tax payments to their state treasury should pay special attention here. Estimated tax payments are due the 15th day of January, April, July and October. This means you're off the hook on another payment until Jan. 15, right? Not if you are thinking about your federal income taxes.

Consider what will happen if you make that estimated payment in December instead of waiting until it is due in January. Paying early knocks this tax chore out of the way before the onslaught of Christmas bills and allows you to deduct your tax payment against your 1999 federal tax bill.

Use this same early-bird strategy for deductible property taxes. Some county or municipal tax collectors will accept an early tax payment. Check with your local property tax authorities. If you find they allow early payments, write that check before Dec. 31. You will be clapping yourself on the back in April.

Strategy Two: Make an extra mortgage payment
Although homeowners cherish the deduction provided by interest paid on their home mortgage interest, they don't always use it fully. Now that the clock is running down toward the end of the year, you don't want to waste a penny of this deduction.

How can you squeeze even more tax savings out of this deduction? Make an extra mortgage payment before the end of the year. Think about it -- your Jan. 1 mortgage payment really represents interest for the month of December. Hustle down to the bank and drop off the payment by Dec. 31. Making that payment one day earlier means you will receive a late Christmas present -- additional deduction for the interest paid.

If you decide to exercise this particular strategy, make sure the paper trail tracking your mortgage payments is in order. Otherwise, you may not be able to take advantage of the tax benefits of paying early.

How do you make sure this play is completed? Double-check the interest statement you'll get from your lender in January. You want to make sure it shows that extra payment you squeezed in before the end of the year. Don't let the deduction disappear due to an oversight by your bank. If the bank didn't register that additional month's interest you paid, figure it yourself and add it to the amount already computed by the bank.

Strategy 3: Move up your closing
Are you in the process of buying a home? Consider moving up the closing before the end of the year so that you can deduct points. The term "points" includes loan placement fees that the seller pays to the lender to arrange financing for the buyer.

The IRS has established a lengthy set of rules that spell out when points can and can't be deducted in a single year.

The buyer treats the points as if he or she had paid them, even if the seller pays them. If all the IRS rules are met, the buyer can deducts the points for this year. If any of those tests is not met, the buyer deducts the points over the life of the loan.

--Posted Nov. 24, 1999