Posted On: 2006-12-26Length:
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Happy Holidays and welcome to Money Girl's quick and dirty tips for a richer life.
Today's topic is year-end tax moves. The end of the year is just around the corner, but there's still time to make some moves to trim your income taxes. Depending on your situation, here are three things to consider doing.
(1) Donate to charity. If you itemize your deductions, you'll benefit from donating to your favorite charity before the end of the year. Charitable contributions made before midnight on December 31 are tax deductible for this year. If you're in the 25% tax bracket, for example, you'll save a quarter for every dollar you donate to charity. Now giving away a dollar to save a quarter is not usually a very bright idea. But remember, the tax savings is a side benefit of making a charitable donation-not the reason to make a charitable donation. So if there's a charity you'd like to contribute to anyway, do it by the end of the year to save on this year's taxes. And if you don't want to contribute money to charity, consider cleaning out your closet and donating things you no longer need. Or giving away a few of those white elephant gifts you may have received.
(2) Size up your gains and losses. If you have a capital gain from a sale of stock, consider selling some financial losers you're ready to part with by the end of the year. You can use the loss to offset your gains to reduce, or potentially even eliminate the amount you owe in capital gains tax. And if you have more losses than gains, you can use up to $3,000 of the excess losses to reduce the taxable income.
Lastly, if you own your own home, and are looking for more deductions, consider paying your January mortgage payment in December. You can deduct the mortgage interest for that payment on this year's taxes. Also consider pre-paying your next property tax payment by the end of the year, if you can afford to do it. It will also increase your deductions on this year's taxes. Now everyone's situation is different, so it's a good idea to consult your accountant or tax adviser...