The holidays will be here before you know it. That means tax season is right around the corner. If you're looking for ways to save, listen up; Stephanie AuWerter, Contributing Editor of SmartMoney.com, has some last minute tips.
With the 2008 presidential election over, some people are wondering whether or not their tax bill will go up under President Elect Barack Obama's leadership. AuWerter advises against making any sudden changes. "Assuming that Obama follows through on his campaign promises, assuming he can get a bill passed, most folks will not pay more in taxes," says AuWerter. So unless you're a top earner, you're probably not going to pay any more than you did last year. If you have serious concerns, talk to a tax professional. They'll be able to crunch the numbers for your own personal situation.
One thing you can do right now is sell losing investments. "The idea of selling a losing investment and locking in that tax break is a very very powerful tax strategy," says AuWerter. Many times, people hold onto losing investments, hoping they'll pan out eventually. If the investment is consistently losing money, you're probably better off without it. Take the loss and move forward.
Deductions are another great way to save money on your taxes. One easy way to save some cash this year is to clean out your closet. If you donate your old clothes, books or household items to a reliable charity, you can use them as a deduction. "The rules vary depending on the value of these items, but as a core, you need to itemize your taxes in order to get that tax break," says AuWerter. Make sure your charity of choice gives you receipts, though. You won't need them for your tax returns, but you will need them if you are audited. When assessing the value of your donations, it's important to be honest. Remember that your $150.00 winter coat isn't worth nearly as much because it's been used.
Another tax strategy is to pre-pay deductible expenses. "You could... prepay your January mortgage bill in December. By doing that, you've made 13 mortgage payments throughout the year, so you get a bigger deduction," says AuWerter. You'll also save on interest. This strategy is best for people who think they'll be in the same tax bracket next year or a lower one.
Finally, consider boosting your retirement contributions. With many people balking at the amount of money they've lost in their 401k this year, it may seem like strange advice to save even more. However, if you put more money away, you will have a lower tax bill this year because your take-home income will have decreased. Most people can contribute up to $15,500.00 per year to their 401k. "It really will pay off," says AuWerter.
For more personal financial advice, visit www.SmartMoney.com by clicking here.
by Erin Petrun
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