It’s not even Thanksgiving yet, but the tax year is rapidly drawing to a close. In less than two months we’ll starting 2010 so if you’re planning on making some year-end tax moves, now is the time. Unfortunately, most people wait until their W-2s and 1099s start coming in before seriously thinking about taxes, but by then you’re left with very few options to correct the current tax year mistakes. By planning ahead you can get a jump on some things that could significantly improve your tax situation in just a few short months.

First-Time Homebuyer Tax Credit

This probably goes without saying, but if you bought a new home this year you’ll want to take a look at this generous tax credit. Originally, it was meant only for first-time buyers who haven’t owned a home in the past five years and closed on their purchase before December 1st. Those who qualified would receive a nice $8,000 credit. But Congress has extended and expanded this credit to include even more people, so you still may qualify for something even if you didn’t under the old plan.

The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn’t owe $8,000 of tax, they can claim the full benefit and receive a refund check. The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000. To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer’s principal residence.

Now, don’t rush out and buy a home just for the sake of the credit, but think about any home purchase you already made this year or were planning on making. This is a huge opportunity if you happen to qualify and you want to make sure you’re getting everything available to you.

New Car Purchase Deduction

Did you know there’s also a tax deduction if you buy a new car before the end of 2009? It didn’t get as much attention as the homebuyer tax credit, but there’s still some money out there for you to take advantage of if you happened to buy a new car this year. Honestly, I think you can still save more money buying a used car vs. new, but this tax break can help take some of the bite out of that new car purchase. This allows you to deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price.

Again, since we’re only talking about deducting the sales and excise taxes on the purchase don’t go and run out to buy a new car just to get the tax credit. But if you are already in the market for a car and planned on buying a new one anyway, just make sure you try and get it purchased before the end of the year so you can qualify for the tax break.

Charitable Gifts and Donations

If you haven’t given to charity yet this year you still have time. Remember that these gifts follow a calendar year so you need to make those donations before the January 1st. As the holidays approach it can be a crazy time and people often forget about making their donations until it’s too late. So, don’t wait, and start thinking about what you’ll donate this year. If you’ll be taking clothes or other items to a place like Goodwill or the Salvation Army, begin collecting those items now and take them in before the holiday rush. If you usually give money to one of the charities each year you should make a call and get the ball rolling on that to make sure it qualifies for this year’s taxes. As always, make sure you keep receipts for all of your donations!

Adjust Your Tax Withholding

Even though we only have a few weeks left in the year you can still make changes to your employer’s tax withholding. If you are in a situation where you’re expecting to owe the IRS money come April you still have some time to make a helpful change. You can change your W-4 exemptions and even opt to have additional taxes withheld between now and the end of the year. This added withholding could be enough to offset some of the taxes you’ll owe when it’s time to file. Not only that, but it’s a good idea to review your withholding and make sure you’re not having too much or not enough withheld for the coming year. No sense in giving Uncle Sam a free loan or putting added stress on you to come up with the money because you didn’t withhold enough.

Unemployment Benefits

If you’re like many Americans this year, you’ve been laid off or had a period of time where you received unemployment benefits. As you may know, these benefits are taxed. It stinks, I know, but there is some relief this year. Individuals are exempt up to the first $2,400 this year.

If you didn’t elect to have taxes withheld from your unemployment check you could be on the hook for making a payment to the IRS come spring. Even worse, if you have been collecting all year and haven’t been paying quarterly estimated taxes you may face an additional penalty. If you haven’t had taxes withheld from your unemployment checks you should use this time to calculate how much of that income is taxable and find out how much you might owe. Start saving that money in the coming months so that if you are hit with a tax bill in April it won’t come as a total shock.

Retirement Savings

Do you contribute to your company’s 401(k) plan? Great! You still have time to contribute even more to your plan before the year is up on a pre-tax basis. If you can afford to it might make sense to increase your deferrals for the remainder of the year to give you that extra boost. Not only does it save on taxes, but you’re doing yourself a favor by putting a little extra away for retirement as well.

Even if you don’t have a 401(k) there is still plenty of time to take advantage of some of the other retirement saving vehicles like IRAs. The best part is that you have until you file your taxes, up to April 15th, to make your IRA contributions for the tax year. That means you still have over five months to make these contributions! If you’re saving in a traditional IRA that gives you $5,000 (or $6,000 if age 50+) in a potential tax break if you make the full contribution.  For most people this equates to about $1,000 of tax savings. That’s nothing to sneeze at. And think about it, with so much time yet to make these contributions even if you haven’t contributed a dime yet this year you can still max out your IRA by saving $1,000 a month before the April deadline.

If you’re saving in a Roth IRA, you won’t be getting any tax break up front for your contributions, but you still have until April to get your 2009 contributions in. Remember, once that deadline passes you can’t go back in time and make contributions for that year. So, make sure you’re taking advantage of your IRA as much as possible. You’re retirement depends on it. If you haven’t even opened an IRA yet, don’t delay. You can open an account for free at any of the online brokerage companies like Zecco and TradeKing.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Start Making Year-End Tax Moves Now and Save Big Money

While this number may not provide the same thrills of calling the number etched on the bathroom stall it could end up saving you money. This is the toll-free number for the IRS tax question line. With this number you can be put in touch with someone right at the IRS who can assist you with your own personal tax situation if you have any questions.

This is particularly a nice resource if you are someone who does taxes on your own and don’t want to pay for those wasteful additional services many of the tax software packages provide where it can cost upwards of $49-$99 to interact with a human to go over your return. This is a free service. Granted, they won’t be able to go over your return line by line and check for errors, but they can help assist you with many questions that can come up with even a simple return. Checking for clarification on an issue could save you money, or even more importantly, keep you from an audit.

Even though it isn’t currently tax season, you can still get some common questions answered and begin preparing ahead of time. This could help reduce a lot of stress that can come from waiting until the last minute.

Other Resources

Another helpful resource can be found by calling TeleTax at 1-800-829-4477. Calling this number you can hear pre-recorded messages covering various tax topics or to check on the status of your refund. TeleTax topics, which range from IRS assistance, to who must file, are listed on pages 8 and 9 of the Form 1040 instruction booklet. The topic list is extensive and could provide a quick answer to a question you may have.

In addition, IRS Publication 910 provides a guide to all available free tax services. This will outline various phone numbers, newsletters, IRS service centers and even workshops to help educate you further on taxes. Bookmark these pages and write down the phone numbers so that you’re prepared once tax time comes. It could end up saving you money.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

For a Good Time Call 1-800-829-1040

Not long ago I wrote about how your car is making you poor. It’s true, and your vehicle expenses can eat up a lot of your budget. One expense people rarely consider is the annual vehicle registration. This can vary greatly from state to state, but if you have a vehicle, then you’re probably aware of this expense.

The good news is that you may be able to get some of that money back in the form of a tax deduction. That’s right, if you itemize your deductions on Schedule A and your registration fee is based on vehicle value (not weight), you can itemize that deduction. This is an often overlooked deduction, but given the value of some vehicles, it could be worth checking into.

I know this is helpful for us because we have two vehicles that each cost roughly $125 a year for registration and it’s based entirely on value. That’s a quick and easy $250 tax deduction each year.

The IRS states:

It has to be a personal property tax, not an excise tax, in order to be deductible. Deductible personal property taxes are only those based on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year. To be deductible, the tax must be charged to you and must have been paid during your tax year. Taxes may be claimed only as an itemized deduction on Form 1040, Schedule A, Itemized Deductions.

So, you will want to check with your state to determine whether your vehicle registration fee is calculated by value, weight, or a combination. If all or part of the fee is based on value, you should be able to deduct that portion on line 7 of Schedule A.

For more information: IRS Publication 17 – Personal Property Tax Section

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Deducting Vehicle Registration Fees If You Itemize Your Tax Deductions

I write this because I almost forgot about the June 15 deadline myself. It wasn’t until last night that I saw a little reminder on my computer alerting me to today’s due date. It has always confused me about the due dates for estimated taxes. The last payment was due on April 15th, yet the next payment is due only two months later. Then the next one isn’t due until September, and the final one isn’t due for another four months in January of next year.

Why can’t the due dates just fall every three months? I’m sure there is some really good reason for the odd schedule, but then again it is the IRS and we’re talking about the U.S. tax code here. We all know how streamlined that is!

All kidding aside, your next quarterly estimated tax payment is due today. The easiest way to make these payments is online through EFTPS.gov but you can still mail it in with a voucher if you want.

The Payment Schedule

If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. The payment periods and due dates for estimated tax payments are:

April 15
June 15
September 15
January 15

Have you been wondering if you should even be paying estimated taxes? Don’t worry, you’re not alone. If you aren’t sure, be sure to check out IRS Publication 505 for all the information you could ever want on estimated taxes. It’s better to be safe than sorry and end up with underpayment penalties, so check it out if you’re unsure.

And don’t be like me and wait until the last day to remember. Set up scheduled payments with EFTPS or set a reminder for a few days in advance.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Don’t Forget About Estimated Quarterly Taxes Due Today

Not All Audits Are Created Equal

It was last Friday that I was walking back from the mailbox and flipping through the mail that I saw one of the most dreaded envelopes you could imagine. It had the IRS logo and information in the return address spot. I knew that any letter from the IRS at this time of year has probably anything but good news in it.

As I open it, I’m expecting the worst. This was the first year I’ve ever hired an accountant and claimed the home office deduction. I thought for sure that I’ve triggered some sort of red flag and I’m going to get the financial equivalent of a rectal exam. But my fears were calmed as i started to read the letter. Yes, there was an error with my return, and yes, I did owe the IRS more money, but it was really not a big deal. It was still enough to tie your stomach in knots as you open a letter like that. Luckily, my problem was minor and it could be resolved easily.

The Problem

It was actually a simple mistake on my part, but they obviously were quick to catch it. When I set up my estimated quarterly tax payments last year, I had the intention of setting it up so that I paid the same amount each quarter and a nice round number. I use EFTPS for electronic payment, but I also just record the amount and date of each payment in a payment log that I then hand over to the accountant.

So, when it came time to do my taxes, all they need is how much I paid in total in estimated taxes for the year, so I gave them the number I had. Well, what I didn’t realize was that for some reason I paid $500 less for that estimated quarterly payment. I still don’t the reason behind that or why I recorded the amount paid incorrectly, but clearly this showed up on my tax return when they compared the amount I paid via EFTPS to what I said I paid.

The IRS was kind enough to send me a copy of the EFTPS transactions and it sure enough indicated that I paid $500 less on that first payment. So, they simply ask that I pay the $500 plus interest and penalty. Well, thankfully that only worked out to a couple dollars. They even provided a self-addressed envelope, so rectifying the situation is as simple as writing a check. Crisis averted, although an important lesson was learned — always double check your records and don’t make any assumptions.

The Correspondence Audit

This is the type of audit I experienced, and it’s the most common type. In fact, many people receive these each year without even realizing it’s what most audits consist of. The correspondence audit is simply a letter sent to you by the IRS that identifies a possible error, information regarding the error, and instructions on how to remedy the problem.

In some cases this may result in actually receiving a larger refund, but more often than it means you’ll owe some additional money unless you can prove otherwise. This correspondence also includes information for how to challenge the IRS’s claim and what information you might need if you want to fight it.

Either way, these audits are relatively painless unless you’ve done something major such as failing to report something significant. As long as you take care of the problem in a timely fashion, you’re not likely to encounter any further correspondence from the IRS.

The In-Office Audit

This is one of the audit types that people usually think about and fear. In these situations, you actually have to gather information and take it to an IRS office to prove that your return is accurate. The auditor will schedule a date and time to meet and suggest what documentation you should bring so that you can substantiate your claim.

It’s obvious to see how this can be something to fear. If you haven’t kept good records or have lost receipts or other important documentation, you obviously know that it can be difficult to prove your claim. Depending on what the IRS asks for, it could be as simple as showing a few expenses to trying to verify that something like your home office actually qualifies for the home office deduction.

Of course, if you have good records and aren’t trying to pull a fast one, even these audits are relatively painless. The IRS may see something differently than you do, but this is your chance to prove it and hopefully fix the issue before additional penalties are enforced. This is where having a tax attorney or accountant can be beneficial.

The Field Audit

The final type of audit isn’t typically going to happen to an individual. The field audit is one where the IRS sends an agent into the field to meet with a taxpayer on-site. These audits are most commonly done on businesses or self-employed individuals making a lot of money. These audits are also sometimes the most feared.

If you do happen to be subject to a field audit, it’s imperative to have legal counsel. There may be significant sums of money at stake and tax laws can be complicated, so having someone on your side that specializes in tax law can potentially save you or even your business.

The Importance Keeping Good Records

As you can see, fearing the IRS and an audit probably isn’t as big of a deal as you may think. Everyone has stories about a friend who had their home ransacked by the IRS trying to turn up receipts from 5 years ago, but in most cases this just isn’t true. For the average taxpayer an audit is simply going to be triggered by inconsistencies in their computer and can be fixed by mailing in proof of something or an extra payment.

Unless you’re claiming a lot of extraordinary deductions or own a business, chances are an IRS audit will be little more than correspondence. Even if it’s as simple as that, without keeping detailed records you could find yourself in a situation where you are actually correct, but can’t prove it. If you can’t prove it, the IRS wins.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

I’ve Been Audited by the IRS – Understanding the Different Types of Audits

Free E-File for Federal Taxes

As if paying taxes isn’t bad enough, having to pay just to complete and file your taxes is a real pain. Wouldn’t it be nice if you could file your taxes for free? The good news is in many cases, you can. That’s right, you could qualify to complete and file your taxes absolutely free. So, let’s go over how you can complete your taxes for free, and if you qualify, even use an e-file option absolutely free.

Doing Your Taxes by Hand

If you like numbers and doing calculations, one of the obvious options is to do your taxes by hand. All of the available tax forms are available for download right from the IRS website, and your local post office should have some of the most common forms and instruction booklets sitting in the lobby. 

There are no limitations as to who can complete and file their taxes this way. From the easiest returns to complex self-employment returns, if you have the time and energy to fill out the forms on your own, more power to you. Your only cost by doing it this way is the mailing of the return. Most experts recommend you mail your taxes via Certified Mail. With Certified Mail you can be sure your article arrived at its destination with access to online delivery information. When you use Certified Mail, you receive a receipt stamped with the date of mailing. A unique article number allows you to verify delivery online. As an additional security feature, the recipient’s signature is obtained at the time of delivery and a record is maintained by the post office. This helps protect you in the event an issue arises and the IRS claims your return never arrived. Certified Mail starts at $2.70.

If you want to go one step further and eliminate the postage, the IRS now has online forms that you can use to enter your information and e-file for free. Again, you’re pretty much on your own in terms of selecting the correct forms, tracking down all of the eligible deductions and so on, but at least it’s free. There’s also no income limitations to use this service.

If your adjusted gross income is less than $56,000, you could be entitled to use the Free File program offered by the IRS in partnership with certain software vendors. You can find more information about Free File on the IRS website.

Getting Help With Your Tax Return

Most people cringe at the thought of doing their taxes by hand, and that’s understandable. But how can you get assistance with your return, and possibly even file your return electronically at no cost? Well, there are a few different options out there that you might be able to take advantage of. Here are the two most popular free tax preparation software options.

H&R Block’s TaxCut

H&R Block’s TaxCut software has been one of my favorites for the past few years. I’ve used the online version, and it’s easy to use and has found a few good deductions that I may have otherwise overlooked. This year, TaxCut has a free online option that not only allows you to complete your taxes for free with their online software, but it includes free federal e-file! File for FREE with TaxCut Online Free Edition.

The free online filing edition is perfect for those with simple tax situations. It’s great for students, individuals and couples that aren’t self-employed, and those who don’t need to itemize deductions. The simple interview process will walk you through your taxes with some basic questions, and you typically just enter the numbers found on the tax forms you receive in the mail. You can then instantly submit your federal taxes for free via e-file. Keep in mind that if you need to complete a state tax return, you’ll have to purchase that or go through with completing that return by hand.

If your tax situation isn’t that simple and you have a business or need to itemize deductions, don’t worry. TaxCut still has some fantastic offers available. They offer a number of software options from a basic return for 1040EZ filers all the way to the Home and Business edition. All of these also come with free e-file, and all purchased versions now get free live audit support. In the past, consumers who e-filed with H&R Block have always had the comfort of a trained tax professional behind them in the event of an audit. Now, this advantage is available even if the return is printed and mailed in to the IRS. Find the version of TaxCut that’s right for you.

Intuit’s TurboTax

Ready for some good news? File your simple return for FREE with TurboTax® Federal Free Edition. Start now – It’s easy! Just like with TaxCut, TurboTax also has a free tax preparation and e-file solution. Again, this is geared towards those with relatively simple tax situations, but if you fit the bill, you can’t go wrong with professional software and e-file for free. 

In addition, TurboTax is also extending it’s free audit and online support for free with all online versions. So if you have a question, you can easily get the answer. Even worse, if you get audited, TurboTax will be there to help. You’re also covered in the event of a mistake. If there is an incorrect calculation in the software that requires you to pay interest or penalties, TurboTax will cover the cost.

If you need something a little more robust than the 1040EZ free online option, TurboTax also offers a wide selection of tax software to fulfil your needs. In addition to doing your taxes online, you also have the opportunity to download or receive a CD for software you can install on your computer. Find the version of TurboTax that’s right for you.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

How to File Your Taxes for Free – Free Tax Software and E-File

January is flying by, and by now you’re probably starting to get some of your tax documents in the mail. Depending on your situation, it may be as simple as receiving a copy of your W-2, or you may be waiting for a dozen different forms. Whatever your tax situation, it’s important to keep an eye out for these documents, make sure you file them in a safe place, and begin thinking about completing your tax return.

As you begin receiving your tax documents, now is also a good time to begin organizing information that you’ll need for your taxes that may not be sent to you in the mail. Things such as reciepts, records of various expenses or purchases, charitable contributions, vehicle registration receipts, and so on. The last thing you want to do is to be scrambling at the last minute trying to track down everything you need to file your taxes on time in April.

Documents to Look For

For most people who earn a paycheck through an employer, the most important document you’ll receive in the mail is your W-2. The W-2 form is one sent by your employer that reports all of your earned wages, taxes paid, and any deductions. If you worked at more than one job throughout the year, you’ll want to receive one of these documents from each employer. If you have not received your W-2 by mid-February, you should contact your employer to see if it was sent or if there is a delay. And double check the W-2 for accurate information. The earlier you catch an incorrect address, Social Security number, or wages, the sooner you can have those corrected. 

Aside from your employer wages, if you have generated any outside income either through self-employment, consulting work, or anything else, you should probably expect a 1099 in the mail. If it was freelance work, or other income generated for services provided, chances are it will be a 1099-MISC. But 1099 forms are used for a number of reasons, and you will also receive a 1099-INT for interest earned on things such as a savings account. Keep in mind that there may be a minimum amount earned before one of these is sent out. In the case of most banks, you won’t receive a form unless you earned $10 or more in interest, and in most cases you’ll need to earn $600 or more before a company sends out a 1099-MISC. Even if you earned less and won’t be getting a 1099, that doesn’t excuse you from reporting it on your taxes. 

Some other miscellaneous documents to keep an eye out for in the mail will vary greatly depending on your specific situation. But if you are repaying any student loans, you can expect a 1098-E that reports how much interest you paid. In addition, you might want to expect something from your mortgage company highlighting your mortgage payments, how much interest you paid over the year, and property taxes paid. And if you placed any trades in a taxable brokerage account, you can probably expect some information regarding those transactions. But whatever your situation, have a good idea of what to expect in the mail so that you can follow up on things if you don’t receive them by mid-February.

Get Organized – Even If You Plan to Hire an Accountant

If you do your taxes on your own, it can really pay off to stay organized. You know that if you’re sitting down at the computer to use TaxCut or TurboTax one afternoon, you don’t want to be wasting time sifting through a stack of papers looking for the information each screen asks for. So, as your tax documents begin to come in, start to organize them so they are easy to access when it comes time to do your taxes. Make sure you separate sources of income from expenses. If you have a lot of detailed expenses or itemize your deductions, start digging up all of the information you need. Instead of wading through a pile of receipts when doing your taxes, take the time now to put the information down in a spreadsheet so you just have one piece of paper to look at when going through the process. This can cut your tax preparation time down from a few hours to just 20 minutes. TurboTax® Online Federal Free Edition lets you file federal taxes online – FREE!

Even if you plan on handing off your tax duties to an accountant, the same rules apply. If you’ve worked with this accountant in the past, you should already have a good idea of what they expect. But if this is your first time having someone else complete your taxes, you want to make their job easier so it can keep your costs down. First, ask your preparer what they need from you. The last thing in the world you want to do is show up at their office with a box full of papers and receipts. While you may need to keep this information for a number of years, it isn’t their job to sift through them and organize it for you. In most cases, they will ask that you go through your expenses and fill out a worksheet or keep track of totals for each category. They may want to come back to receipts to verify something, but there is no sense in increasing your tax preparation fees by making them your auditor as well. 

And start planning now so you’re not scrambling to make an appointment later. Accountants and tax preparing services get increasingly busy the closer you get to the April deadline, so think ahead. This doesn’t mean you have to do your taxes in February, but you should at least begin thinking about setting up an appointment. In a worst case scenario, accountants will be so busy come April that they may have to begin turning people away. If you thought your taxes were stressful enough, just wait until you’re two weeks out and you now need to try and find someone to fit you in.

A Little Preparation Goes a Long Way

So, don’t let things go down to the wire this year. Doing your taxes doesn’t have to be a stressful project. If you take the proper steps early to make sure you receive all of your necessary paperwork, and take a few minutes to organize all of your information, it will be incredibly easy to get through tax season. I generally do my own taxes with the help of TaxCut. It’s inexpensive, and they even have an option to do them right online without the need to download or install any software. If doing taxes on your own isn’t your thing, start asking around for referrals for a good accountant. Regardless of how you do your taxes, if you plan ahead, you’ll have no reason to fear April 15th.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

As Your Tax Documents Arrive in the Mail, Begin to Get Organized and Don’t Procrastinate

Free Tax Answers Until January 31st

We’ve closed the books on 2008, so that means it’s time to start thinking about taxes. Are you someone who likes to get going on filing right away, or do you wait until April? Either way, if you have questions regarding your tax situation, you probably realize that it can be difficult or time consuming to find accurate answers online, or it may cost money to hire an accountant for professional advice. 

Luckily, the good folks at Turbo Tax have put together a promotion where you can get your federal tax questions answered personally via phone. The process is simple. All you have to do is go to www.freetaxquestion.com and enter your question and provide a time when you’d like to be contacted. A tax expert will then call you to answer your question. It’s that simple.

While this won’t replace having your own accountant, for many people it can provide a great way to get a quick answer to a question that’s stumping you on your return. How do I claim this deduction? Can I deduct my child’s tuition expenses? Do I qualify for…? and so on. This service usually costs $29.95, but it’s available for free to everyone through January 31, 2009.

I’ve always been more of a TaxCut guy and have been using that the last few years, but I was considering hiring someone this year to do my taxes. But, since I’m fairly comfortable with doing my taxes, I may give this promotion a try to see if I can get a couple basic questions I have answered. It might save me the trouble of getting an accountant. 

Their tax advice line is open between 7 am and 7 pm PST. So if it’s too early or too late, just check back to the site during those hours and you’ll be able to submit your question.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Get Free Advice and Answers to Your Tax Questions – Limited Time Only

Make the Most of Your 2008 Tax Deductions

It might only be December and you realize that you still have roughly four months before the tax filing deadline, but that doesn’t mean you should ignore thinking about your taxes right now. Instead of thinking about the April 15th tax deadline, you should be thinking of it in terms of having just a few weeks left in which you can reduce your tax bill come April. 

As you may know, for most forms of income and deductible expenses, it’s all based on a calendar year. That means December 31st is going to be the last day to make any moves that are required in order to decrease your 2008 taxes. Here are some areas where you can make an impact on your tax situation.

Investments

The first way to make an immediate difference on your tax bill is to reduce your taxable income by contributing to a qualified pre-tax retirement plan. This includes a 401(k), 403(b), 457(b), Traditional IRA, or a number of self-employed retirement accounts. While the IRA does allow you time into next year before you file your taxes to make a contribution, when it comes to your employer-sponsored plans, you have to make contributions before the end of the year.

So, if you haven’t yet maxed out your 401(k) at work, you may want to consider increasing your contribution for the remainder of the month. You probably only have one or two paychecks left this year, but a temporary bump in contributions can shave a few hundred dollars in taxes. If you have a traditional IRA and don’t want to worry about making a contribution next year before filing your taxes, go ahead and make it now. Not only will you get it out of the way, but you’ll be buying in at some pretty low relative prices.

While contributions into qualified accounts is a good way to reduce your taxable income, don’t overlook losing investments in taxable brokerage accounts. You can sell off investments at a loss and use the loss to offset gains, or even your regular income. If losses are substantial, you can even carry the losses over into future years. 

Donations to Charity

Donations are another item that typically need to be made before the end of the year if you want them to count on your taxes. Whether you regularly donate to charity, or you’re thinking about it for the first time, you may want to consider doing it in the next few weeks if you want to cut down that tax bill. 

Keep in mind that you need to keep all of the appropriate documentation and receipts associated with donations. Don’t let that deter you, but be mindful that the IRS won’t like it if you just estimate or fudge some numbers to get a tax break.

Flexible Spending Accounts

Use it or lose it. That’s the name of the game with most flexible spending accounts. While the coverage year can vary, most employers opt for the calendar year. That means if you’ve put money into a FSA and there’s still some left as you approach the end of the year, you want to make sure you’re taking advantage of it. You’ve already received the tax break on these funds, so make sure you’re taking full advantage.

Now is a good time to stock up on qualified over-the-counter expenses. While you may not be sick right now, or you might not need a particular medical device at this time, think about your needs in the coming months and plan those purchases accordingly so that your money doesn’t go to waste.

Extra Mortgage Payment

If you carry a mortgage and are still early in the loan paying a significant amount in interest, you might consider scheduling your January mortgage payment a little early. Especially if your mortgage payment comes due on the 1st of the month, just moving it ahead a day or two could tack that interest payment on to your 2008 taxes. 

Of course, this only works if you itemize and take the mortgage deduction, and it also depends on how easy it is to change your payment date. But in this case, just moving the payment a few days earlier could result in a decent deduction. Keep in mind that you’d be one less payment short in 2009 unless you made another regular January payment or did the same thing at the end of next year.

For the Self-Employed

If you have your own business, either part-time or full, now’s the time to stock up on anything you might need. If you hate playing the stiff self-employment tax, you can make a dent in it by making purchases before the end of the year. Whether it’s office supplies, equipment, or even services, if you know you’ll need them going forward, do it now so you can reduce this year’s taxes. As always, keep your receipts and records of all purchases.

These Are Just a Start

The tips above are just a start, and there are a number of ways you can use the last few weeks to reduce your tax liability for 2008. Ideally, it would be nice to space everything out across the year to maximize your cash flow, but if you’re in a situation this year where you think you might be stuck with paying more taxes than you want, you can still take action to minimize that. 

And don’t stop there. Instead of waiting until the last minute to make these decisions, use some time now to begin planning for 2009. You should have a better idea of what your income and expenses will look like next year, so you can start now in preparing for those taxes so there isn’t a surprise come the end of next year.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Time is Running Out for Making 2008 Tax Deductions

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

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