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Profit in 2008: Your taxes

The Democrats are in Congress and it's an election year - a lot of changes could be on the way.

By Janice Revell, Money Magazine senior writer

(Money Magazine) -- Could 2008 finally be the year that the dreaded AMT is killed? It's a distinct possibility, since Democrats, who took control of Congress in 2007, recently introduced legislation that would do away with this parallel tax, aimed at wealthy tax dodgers but increasingly hitting the law-abiding middle class.

You'll also want to keep an ear tuned to the tax musings of the presidential candidates to get a handle on what could happen to the rest of your tax bill depending on who next occupies the Oval Office.

Manage your AMT risk
Make money in 2008:
22 profitable moves

You're particularly likely to have to pay the AMT if you were subject to it last year or if you make more than $100,000, pay high state and local income and property taxes, and have significant write-offs for personal exemptions.

To avoid being snagged by the tax or to reduce your liability if you are, take full advantage of "above the line" deductions - the main ones available to AMT payers.

Among them: IRA contributions, self-employed health insurance costs and alimony payments.

Have any investment dogs you're thinking about selling? Dump them now - the losses will offset any gains, which can push you into the AMT zone.

And don't prepay your state and local taxes in 2007, advises Barbara Weltman, a tax lawyer in Millwood, N.Y. Save those deductions for 2008, when the AMT just might be history.

Not sure where you stand? Visit your tax preparer or run the numbers yourself with a program like TaxCut or TurboTax.

Watch the polls

As the 2008 presidential race unfolds, the candidates' positions on Iraq, health care and other pressing issues are, rightly, more likely to guide your vote than what they say about the capital-gains tax.

Still, it's good to know.

Republican hopeful Mitt Romney, for instance, has vowed to abolish the tax on capital gains and dividends, which currently stands at 15%, for taxpayers making $200,000 a year or less.

The top Democratic candidates, meanwhile, have all signaled that they'd hike the capital-gains tax, at least to some extent. So if you happen to be sitting on a pile of Google shares that have tripled since you bought them and it starts looking like a Democrat will win, you might want to unload some shares before 2009.

If a Republican gets in, no rush (assuming you still like the stock's prospects, that is).

Profit in 2008: Get better interest rates Top of page