10 smart year-end tax moves
"The kiddie tax age has been rising in recent years and in 2008 it will apply to children up through age 18 or fulltime students up to 23," says Bob D. Scharin, RIA senior tax analyst from Thomson Tax & Accounting.
If your youngster will be in that new kiddie tax age range next year, you might want to consider selling appreciated properties by Dec. 31. You don't have to sell all appreciated assets now, but do dispose of enough to safely keep next year's earnings below the earnings threshold, which goes up slightly, to $1,800.
"That way, the capital gains will be taxed at the child's own capital gains tax rate, probably 5 percent, rather than at the parents' rate," says Scharin.
9. Shop for your classroom
Teachers and other school employees can deduct up to $250 spent on materials to make the learning experience better for students. In addition to classroom teachers, this tax break can be claimed by teacher aides, counselors, even principals, as long as they work at least 900 hours in a public or private school for kids in kindergarten through grade 12.
Even better, the deduction is claimed directly on the long Form 1040. There's no Schedule A itemizing to worry about. All you've got to do is buy $250 worth of classroom supplies by Dec. 31.
Because the deduction amount is relatively small, most teachers probably have already reached the limit, says Scharin. But if you haven't, now's the time to do a little extra tax-break spending.
10. Ramp up retirement contributions
Give yourself a holiday gift of future financial security by starting or adding to retirement savings accounts. Some taxpayers could get a direct deduction on their next return. All who start or add to the account will begin building a nest egg sooner.
If you're eligible to participate in your company's 401(k) retirement plan and its rules allow you to enroll now, do it. If you're already contributing, think about upping the amount. The money you contribute reduces your taxable income, and that should help lower your eventual tax bill.
This strategy also applies if you work for yourself, either full-time or have a side business to supplement your salaried job. Dec. 31 is the last day you can open a Keogh or a solo 401(k) retirement plan. These savings vehicles are the self-employed equivalents of corporate retirement programs and will help whittle down the taxable amount you brought in via your own enterprise.
Even if your year-end retirement account contributions aren't enough to substantially cut your 2007 tax bill, adding to them now will definitely give you a head start on reducing next year's taxes.
Finally, remember that every tax situation is unique. While these 10 tax moves might help
many filers, evaluate your financial and tax circumstances carefully before taking action.
In some cases, it's possible that some tax moves might be more beneficial if postponed until 2008.
Learn about such instances in the Bankrate feature "4 tax moves NOT to make in 2007."