You can also donate an asset that has appreciated in value but no longer fits your investment plan. As long as you've owned the asset for more than a year, the charity gets to use it as needed and you get to deduct the asset's value with no capital gains taxes to worry about.
Older donors also have a special giving option. If you're 70½ or older and don't need the money in your IRA to live on, the option to directly transfer that distribution to a charity was renewed for the 2008 and 2009 tax years. By giving the money to your favorite nonprofit, you'll meet the IRS required minimum distribution rules, but you won't owe tax on the money you donate. You and your spouse can give up to $100,000 a year each. Remember, though, you won't get a deduction for the direct IRA donation.
9. Adjust your withholding It's tough coming up with extra cash during the holidays. But it's also tough coming up with a big tax bill plus penalties when you file your return. That could happen if you haven't paid enough taxes during the year through payroll withholding.
You still have some time to correct this, by either changing the allowances on a new W-4 form you file with payroll, or by having a specific extra dollar amount withheld from these last few paychecks of 2008. Making this change is an easy way to avoid an underpayment penalty. As long as your withheld amount comes to at least 90 percent of your eventual tax bill or 100 percent of your 2007 tax due amount, you'll be OK.
10. Do a test tax run The major tax preparation software companies already have their 2008 tax packages out, either on store shelves or available for download from their Web sites. If you use the software to complete your returns, and most of us do, get the program early and do a test run before the end of the year.
Running the numbers early can help you see if you might face under-withholding issues mentioned in Year-end Tax Move #9. It also can help you anticipate the alternative minimum tax, or AMT.
"In order to really do your planning, you must determine if you're subject to regular tax rates or AMT," says Kunkel. "Customary tax planning moves need to be reversed for AMT. For example, if you're going to pay regular tax rates, you might want to prepay your property taxes and get that deduction this year. But if you're going to end up in the AMT, that's not allowable, so you wouldn't bother to prepay that tax."
Either way, the key to keeping your tax bill as low as possible is to consider making tax moves now. Once the calendar pages flip to 2009, there's very little you can do to substantially affect your 2008 tax liability.
So take some time examining which of these 10 year-end tax moves will work for you. Talk with your personal tax adviser for details that might be unique to your tax situation. Just make sure you take all the necessary tax-cutting steps by Dec. 31.