Now is time for New Year tax preparations
Some helpful ways to get ready for tax time in 2008.
NEW YORK (CNNMoney.com) -- Before we ring in the New Year, there are some things we can do NOW that will help us out come tax time. Here's what you need to know.
1. Calculate your AMT potential
Now is the time to calculate whether you'll have to pay the dreaded alternative minimum tax. Each year more Americans are subject to this tax. Know what the triggers are so you can figure out if you'll be on the hook this year.
First, the AMT generally catches people who pay high state and local taxes. So watch out if you're a resident of New York, New Jersey or California. Another trigger for the AMT is having a large family. H&R Block has a calculator on its website that can estimate if you'll owe AMT. Accelerating deductions, like prepaying state and local income taxes, won't reduce your income for AMT.
2. Add more to your 401(k)
The more you put into your 401(k) this year, the smaller your tax bill will be. It's not too late to change your contribution. This is a great use for that holiday bonus. The limit this year is $15,500. If you're over fifty years old, you can contribute up to $20,500. You might also consider contributing to a Roth 401(k) if your employer offers such an account. Like a Roth IRA, the income you earn is never subject to tax but your contributions are taxed.
3. Prove your charity
If you donate to charity, including cash donations (regardless of the amount), you'll need proof. This means you'll have to gather canceled checks, bank records or receipts. If you plan on donating to charity this holiday season, consider using a credit card, according to JK Lasser. This way you'll have an automatic receipt. Plus, if your check doesn't clear until after the New Year, you won't be able to qualify for a deduction in 2007.
4. Grab the tax credits
If you were thinking about making your home more energy efficient, you still have a little time left get the tax credit for it. Two energy tax credits will expire at the end of this month. You'll be able to cut your tax bill by up to $500 if you replace your windows, doors, upgrade your heating/cooling systems or add insulation to your home.
You can also still get a credit if you install a solar powered how water system, or put up solar panels. But, there are restrictions. Check out irs.gov and search for energy credits to get the details.