How to Reduce Your Taxes at Year-End

Look at all the money I saved

This article complements my articles on maximizing itemized deductions and reducing capital gains taxes, by offering further ideas on how to reduce your taxable income and lower your taxes for the current tax year.

Instructions

1. Make a traditional IRA contribution. This is one of the most obvious and simple strategies that can be used to save on taxes. Of course, this can be done up until April 15 of the following year, but 401(k) or pension contributions are just as deductible and have a year-end contribution deadline. You may have to make special arrangements with your payroll department to make the additional contribution.

2. Make your January mortgage and real estate payments in December. This allows you to deduct the interest from the payments in the current year. Be sure to add the interest from the mortgage payment on to the interest shown on your form 1098.

3. Contribute funds from your IRA directly to a charitable organization in December. There is a special bonus for IRA holders for 2007 only: Any traditional IRA distribution will not be taxable if the distribution is made directly to a charity.

4. Spend any unused dollars in your flexible savings account. Some plans allow for use through March 15 of the following year. Check your employer's plan for details.

Tips & Warnings

• For more information, consult your tax advisor.