Tax Saving Tips for December

11 down, 1 to go. New Years is only a month away. Want to reduce your 2007 taxes? Here are some suggestions:

1. Reduce your income and improve your retirement by maximizing your contributions to tax qualified retirement plans.
2. Harvest your losses – If you have any taxable capital gains this year, chances are you also could have some unrealized capital losses too. If you sell the security and take the loss now, you can offset your gains and even deduct up to an additional $3000 of ordinary income. To circumvent wash sale rules, take the proceeds and park them for more than 30 days. After that you can repurchase the original security if you want.
3. Cold weather is upon us. Take advantage of tax credits for energy efficient home improvements.
4. Can you wait for the money? Consider postponing some income or waiting until 2008 to sell some investments.
5. Accelerate your tax deductions. Consider giving 2008's charitable contributions in December 2007, or purchasing business equipment before the end of the year.
6. Have minor children? Take advantage of Kiddie Tax rules. If you are a business owner, hire them. Even if you are not a business owner you can still gift assets which have increased in value for them to sell and pay the tax on the income. Children pay no tax on their first $850 of income and then pay taxes at their own tax rate (usually 5% - 10%) on the next $850. Unfortunately after $1700 they have to pay taxes at their parent's tax rate.
7. Donate highly appreciated assets. Suppose you own something which has grown in value like artwork or an investment. If you sell it, you would have to recognize the gain as income. Did you know that you can donate the asset to a charity, never pay tax on the gain, and enjoy a tax deduction based on the market value of the asset when you gifted it?
8. Prepay. By making an additional mortgage payment, you will have paid additional (deductable) mortgage interest in 2007. Same is true if you pre-pay some of your 2008 property taxes.

I'm sure there are plenty more. Feel free to add to the list in the comments.

As long as we are discussing 2007 taxes, be sure to read West Des Moines CPA Joe Kristan's blog entry 'No 1099' Doesn't Mean 'Tax Exempt'.

Happy New Year by dincordero