Getting Ready for Taxes

By Remar Sutton, DCU StreetWise Spokesperson

With December, the end of the year is fast approaching and our thoughts are usually focused on holiday celebrations. Who wants to think about money at times like these? But before you get caught up in holiday festivities, it is smart to pay a little attention to this year's taxes. Here are some end-of-the-year tips that may help you reduce them or, at least, pay no more than you have to.

Of course, what most of us think of first is beginning to gather our records—statements of various financial accounts, receipts for tax deductible expenses, mileage logs and the like. That's great, but it's just as smart to look for potential tax savings. Start by making income tax projections for this year and next. These numbers can help you determine what impact the following tips can have on your tax bill.

Do you itemize deductions? If you don't, consider doing so. Should I Itemize? from the IRS can help you decide.

Contribute to charity.These contributions are deductible only if you itemize. Make sure you make the donation before December 31st. You can learn how to make sure that your gifts go to organizations that use your dollars wisely in Remar's Review Giving Wisely.

Contribute the maximum to retirement accounts. This includes IRAs, 401K and other accounts.

Review your portfolio. If you made money during the year when you sold stocks (bonds, or mutual funds), consider selling a loser to offset some or all of the gain.

Review your flexible health-care spending account. These accounts deduct money from your paycheck pre-tax. You use the money to pay for a wide range of health care expenses (not covered by insurance) and for childcare or eldercare. Make sure you use up all the money in the account.

Plan IRA distributions. If you are 701/2 or older, don't forget to take at least the minimum distribution from your IRA, or you will have to pay a 50% penalty on the shortfall.

Check your withholding. You don't want to be caught paying the government too much or too little. If you discover that last year or this year you have a really big return coming (I'd say more than $1000), then you may wish to adjust your withholding for the next year. Instead of having too much money withheld from your paycheck put that extra money in a savings account at the credit union and earn interest on it. But be careful, you also don't want to pay a penalty for not paying enough. Use the IRS withholding calculator to check if you are over or underpaying.

For more information

These articles provide more information on the above tips and offer others.

Don't Pay Too Much Tax - or Too Little from the IRS

Year-End Tax Planning from the Motley Fool

Top 10 Year-End Tax Tips from TurboTax.com

Year-End Tax Planning Moves for 2003 from Smart Money

So, what do you think?

If you find this review helpful, please pass the word to your friends. Also email me with any comments or suggestions.

Remar Sutton

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