10 smart year-end tax moves
"This is an absolute must-do," says attorney Barbara
Weltman, who also is an attorney and editor of various J.K. Lasser
tax guides. "If you want a Honda hybrid, buy it in December so you'll
get twice as much of a tax credit as you would in January."
It's already too late for fans of Toyota and its luxury nameplate, Lexus. The credits for that Japanese automaker's hybrids were eliminated on purchases after Oct. 1.
The IRS keeps a running list of the eligible vehicles and their available credits (or the elimination of them)
in its "Summary of the Credit for Qualified Hybrid Vehicles."
There's an added tax bonus for all car buyers, regardless
of whether you go for an environmentally friendly hybrid or a gas-guzzling
sports car. If you itemize and opt to deduct sales taxes instead
of income taxes, you can add the sales tax paid on your new wheels
to the table deduction amount that the IRS provides.
6. Maximize medical expenses
Itemizing taxpayers can increase their deduction amount by claiming eligible medical and dental expenses. The big problem with this tax break is that the expense amount must exceed 7.5 percent of your adjusted gross income. That means, for example, a taxpayer earning $50,000 must accumulate medical costs that exceed $3,750.
If you're close to that limit, look at ways to get over the hurdle in the next few weeks. Have you been putting off elective surgery? Schedule the procedure before the year's end to bump up your medical bills to the deductibility threshold.
You also can count any dependent's medical treatment, as well as the installation costs of special, doctor-prescribed therapeutic equipment or medically necessary improvements to your home. And if you must travel for medical treatment, you can deduct the drive at 20 cents per mile for any trips this month (or the previous 11 months), along with any parking and toll costs you paid along the way.
7. Make more miscellaneous payments
While you're spending medical money, consider upping your miscellaneous payments. You can claim these costs, such as union or professional dues, job-related educational expenses and subscriptions to business publications, on your Schedule A, too.
But like the medical claims, miscellaneous costs also must meet a percentage of your adjusted income to count. In this case, it's 2 percent.
If you're near the threshold this December, prepay some of these expenses. Buy the uniform you were going to get in January, extend your business journal subscription another year, pay the registration fee for that job-related computer class you plan to take in February.
8. Keep an eye on the 'kiddie tax'
The so-called "kiddie tax" was designed to keep parents from placing assets in child's name to avoid higher taxes. Under the law, a youngster's first $850 of investment income is tax free; the next $850 is taxed as the youth's usually lower income (10 percent to15 percent) and capital gains tax rates (5 percent).
Earnings in 2007 of more than $1,700, however, are taxed at the parent's highest tax rate (15 percent on long-term capital gains and dividends; up to 35 percent on short-term gains and ordinary income) until the child reaches a certain age, at which time the youth's typically lower rate takes effect. For the last several years, lawmakers have been hiking the trigger age, thereby collecting more tax money from the parents to whom the holdings' tax consequences apply. And in 2008, even more families are going to face kiddie tax consequences.