As the end of the year quickly approaches, the Internal Revenue Service is offering some tax tips that may help residents get a better refund next year.
Although taxes for 2008 are not due until April 15, officials say there are several items that should be looked at before the end of the year. One important item that can make a big difference is charitable contributions. According to a news release, taxpayers should make sure to give all charitable contributions before Dec. 31. IRS spokesman Clay Sanford said it is important to keep a record of any contributions, which may be something taxpayers overlook.”There’s a first time for everyone when it comes to charitable donations in their life,” he said.
Sanford said record-keeping is very important when it comes to charity. A record of the contributions should be kept for three years, and a written communication from the charity about the contribution must be kept as well.
Marty Evans, a local spokesman for H&R Block, said tips about charitable contributions are especially relevant in Utah, where a large portion of the population gives money to their church or a local charity. Evans said residents can use “tax planning” to pay extra money to a charity before Dec. 31 and maximize their deduction.
Evans said tax planning works for taxpayers who plan to itemize their deductions. If the deductions for the year aren’t quite high enough to reach a certain point for itemization, charitable contributions for the next year can be made early to make up the difference. For someone who knows how much they plan to give in the next year, that amount can be contributed early to maximize the deduction and reduce the contribution necessary next year. Tax planning does not work for everyone, but it can be a valuable way to maximize deductions.
“That’s just part of tax planning and knowing what their situation is,” he said.
Evans said tax planning can also be used for qualifying health, retirement and other savings plans. A person can contribute the maximum amount to these plans before the end of the year and save on taxes on the money. That way, Evans said, the government is helping contribute to the plans through the savings in taxes.
“The government is paying for up to 50 percent of your savings plan,” he said.
Evan said it is also important to look through paperwork before the end of the year to make sure everything needed is available. Work expenses like travel cannot be deducted without receipts, and waiting until April may be too late to obtain the necessary paperwork.
“If you can’t substantiate it, you can’t deduct it,” he said.
According to the release, stock owners should also evaluate their portfolios and get rid of bad stock before the year is up. Capital losses from stocks can be netted against capital gains and may be used to reduce ordinary income by up to $3,000.
Sanford said it is a good idea to start working on taxes early to ensure they are done right. Even with a tax preparer, the actual taxpayer is responsible for the tax return, so residents should take the time to research tax preparers and get references. He said some people wait too long to file their taxes and find themselves in trouble, whether it be with missing paperwork or just long lines at the post office.
“People who owe money may put it off to the last minute,” he said. “I wouldn’t encourage them to do that.”