By David Burge
RISMEDIA, Oct. 15, 2008-(MCT)-You still have 2 months until the end of the year, so now is the perfect time to do some tax planning to help reduce your tax bill or increase your refund in 2009, experts say.
If you were stressed out last spring during tax-filing season, do some planning now to make things a little less hectic next time around, experts say.
If you’re one of millions of Americans who filed for an automatic six-month extension and are busy trying to meet Wednesday’s deadline, a little planning can help you avoid that situation next year. Nearly 10 million people nationwide and 1 million Texans received extensions this year, according to the Internal Revenue Service.
“This might be the best time to do some tax planning,” said Mark Steber, national vice president of tax resources for Jackson Hewitt Tax Service. “There’s still plenty of time to do a few simple things to reduce your tax bill and increase your all-important refund which is even more important” with the bad economy.
To get a handle on your tax situation, do a quick estimate of where you stand this year, said Jerry Love of Abilene, a certified public accountant and former state chairman of the Texas Society of CPAs.
“Most people’s situations are pretty straightforward,” Love said. Take your latest paycheck, see how much you’ve earned so far this year and then estimate your income through the end of the year, he said. Then compare that to what you made in 2007.
If it’s the same as last year, you can bet you’ll owe about the same or get the same refund, Love said.
If your income has increased, take some simple steps to lower your tax bill, he said. For instance, you can increase your 401(k) contributions. This can help you reduce your taxable income and save for retirement, Love said.
Consider making some late-year charitable contributions. Many nonprofits are reporting that contributions are down this year because of the economy, Love said. If you itemize, you can deduct your charitable contributions, but make sure you get a receipt or other documentation.
If you’re a homeowner and you itemize, Love said, consider making a second mortgage payment in December to double up on the deduction for mortgage interest, which is a long-standing tax break for homeowners.
“But here’s the catch: You need to make sure the mortgage company receives your money and posts it before December 31,” Love said.
Eastsider Nicole Sparrow said it’s “super important” to get organized and save your tax receipts.
“You get a better refund if you have your stuff in order,” Sparrow said. “Otherwise, you end up missing important tax benefits.”
Once a week, Sparrow takes about 20 minutes to file away her receipts.
“It’s definitely worth it,” she said.
Jackie Perlman, senior tax research coordinator with H&R Block’s Tax Institute in Kansas City, Mo., advises taxpayers to do a quick W-4 withholding allowance “checkup” to make sure you’re not having too much tax withheld or too little. Adjust your withholding if necessary, she said. This is especially important if you’ve had a big life-changing event this year, such as getting married, divorced, having a child or buying or selling a house.
Also, be cognizant that many tax breaks are available even if you don’t itemize, Perlman said. And if you can itemize, don’t be afraid to do it, she added.
Bankrate.com Tax Editor Kay Bell, an Austin resident, agrees this is a great time to do some tax planning and organizing.
Start out by dedicating a specific place in your home to store your important tax and financial papers, Bell said. This doesn’t need to be anything fancy; a shoebox, an accordion folder or a drawer in a cabinet will all suffice.
“When you start doing your taxes, you want all your documents and information right at your fingertips so you can get through the process,” Bell said.
If you sold some stock during the recent financial meltdown and sustained some losses, you could actually win on your taxes and write off those losses next spring, Bell said.
If you sold some stock earlier this year and made a profit, you can use your losses to offset part or all of your gains, she said.
Here’s a simple example. Of course, you need to factor in your other income when doing your taxes.
Suppose you sold stock A and made a $3,000 profit. If you owned the stock for more than a year, you would qualify in most cases for the lower 15% capital-gains rate. In this scenario, you would owe $450 on the stock sale.
Now, let’s suppose you sold Stock B, another stock you owned for more than year, Bell said. For the sake of the example, you lost $2,000.
You can take that $2,000 loss and subtract it from your $3,000 gain and you only owe tax on the remaining $1,000. In this case, you owe $150 in taxes, a savings of $300.
Even if you didn’t have any capital gains to offset, Bell said, you can use up to $3,000 of capital losses to offset your ordinary income, resulting in a tax savings.
Tax credits, deductions
The economic bailout bill, passed by Congress and signed by President Bush on Oct. 3, extended dozens of tax credits and deductions, Steber said. This includes extending a $500 tax credit for making improvements to your home to increase its energy efficiency. Covered items include doors, windows and insulation, Steber said.
Congress has passed at least seven tax bills this year, Steber said, creating a bunch of new deductions and tax credits.
A key one to know about is a new property-tax deduction for non-itemizers, Steber said. This deduction is $500 for single filers and $1,000 for married couples filing jointly.
If you’re a first-time home buyer and you bought a house after April 8, 2008, or plan to do so before July 1, 2009, you may qualify for a new tax break, but with some strings attached, Bell said.
Congress created a new first-time homebuyer tax credit of up $7,500 this year. The caveat, Bell said, is the credit needs to be paid back to the federal government as part of your taxes in equal payments over 15 years, starting two years after you claim it, Bell said.
“This was designed to help people get into a home,” she said. “It’s more of an interest-free loan than a credit.”
Perlman said you need to be aware of what this credit actually entails.
“It’s not for everyone,” she said. “It can put some cash in your pocket but needs to be repaid. You don’t have to take the credit. If it’s good for your situation, take it. If not, don’t.”
Copyright © 2008, El Paso Times, Texas
Distributed by McClatchy-Tribune Information Services.
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