There's a great deal of uncertainty around tax rates for 2011, and we may not hear about definite changes until later in December. Still, there are some moves you can make right now to potentially reduce your financial exposure to Uncle Sam come April 15.
1. Deduct Business Expenses
If you started your own business or began freelancing or working from home, gather up those business-related receipts. The cost of work-related travel, food, office supplies - maybe even gas - can be deducted from your taxable income. Check out the IRS' list of qualifying deductions.
2. Review Medical Expenses
Know that you can deduct your out-of-pocket medical expenses as long as they add up to 7.5% or more of your adjusted gross income. (So if you earn $75,000, for instance, that's $5,625.) If you're thinking of getting any elective surgery - even LASIK - that expense, plus other out-of-pocket medical care you paid this year for, could help reduce your taxable income.
Charitable donations - from cash to cars â€" may be tax deductible up to 50% of your adjustable gross income. Appreciated property donations - like real estate, art, antiques - are deductible up to 30%. Time to start cleaning out the closet.
4. Offset Capital Gains It's been an up year for the market overall, so if you've cashed in on some gains, look for losing stocks in your portfolio. If you sell them before the end of the year to end up, the net loss can offset your short-term capital gains (which are taxed at 35%).
5. Boost Retirement Savings If you've neglected to save this year, it's not too late to get aggressive and further reduce your taxable income. The maximum contribution this year to a 401(k) is $16,500 (or $22,000 if you're over 50). For IRAs, the max contribution is $5,000, or $6,000 if you're above the age of 50. Expecting a year-end bonus? Not a bad way to pay yourself.
(Considering converting to a Roth IRA? Learn more about it from CBS MoneyWatch's Allan Roth.)
More on MoneyWatch:
- Are Roth IRAs and 401(k)s Better?
- 5 Tax Moves You Must Make Now
- College Tax Break for Working Students in Danger
- Tax Breaks For Dependents: Who Qualifies?
- Dumbest 401(k) Mistakes to Avoid
- Tax Fight: Will Your Taxes Go Up?