After a tough weekend of shopping, your wallet's probably feeling the pinch. So now would be a good time to give your credit cards a break and focus on putting more money into the income column of your budget.
Plenty of shoppers count on an early tax refund to replenish their empty bank accounts. If you're looking to supersize that check from the IRS, here are things you can do right now.
1. Use your retirement accounts.
Get a quick tax break by contributing more to your retirement accounts. This year, you can contribute up to $4,000 in an IRA, as well as another $15,500 to a 401(k) employer plan. If you're 50 or older, those numbers go up to $5,000 and $20,500, respectively. So unless you've maxed out all your options, hiking your contributions to make full use of those deductions can make your refund a lot bigger.
You may wonder why you shouldn't wait until next year to add to your retirement accounts. It's true that with an IRA, you can wait until as late as next April to make a contribution for 2007. But with 401(k) plans, you've only got until Dec. 31 to put in money for this year. After that, contributions count against your 2008 limits, and they won't count as deductions for the 2007 tax year.
2. Turn your losers into winners.
Losing money on a stock is never fun. But at the end of the year, even storm clouds hanging over your investments have a silver lining. By selling stocks that have lost you money, you can take advantage of your losses on your tax return.
Specifically, your losses can offset any gains you have on other investments. Furthermore, you can use up to $3,000 in losses against other income, including your salary or investment income. And if those wild market gyrations have wrought even greater havoc on your portfolio, you can carry forward any losses you can't use this year, saving them for future years.
Selling to gather tax losses is so commonly done that it probably affects year-end stock prices. For instance, some have suggested that tax-loss selling on stocks has only worsened the drop in hard-hit financials Countrywide
3. Pay your taxes early.
In addition to federal taxes, you probably pay other taxes, such as real estate taxes on your home, sales tax on purchases, and state income taxes. If you itemize your deductions, some of those tax payments qualify as deductions.
Generally, it makes sense to wait as long as possible before paying any bill. But the chance to deduct tax payments on this year's tax return sometimes makes it worthwhile to pay something early. For instance, if you have a tax bill that's due on Jan. 15 or Feb. 1, consider paying it at the end of December instead. That way, you can take that payment as a deduction.
4. Watch your income.
The same idea holds true for income. Usually, you want to get paid as soon as possible. But at the end of the year, it sometimes makes sense to wait a week or two so you can push the tax on that income into the next year.
Also, be careful with your mutual funds. An ill-timed purchase immediately before a year-end capital gains distribution can create a big tax bill, even though it won't make you any money. Look to see what your mutual fund plans to pay out this year, and wait until after that distribution to put in any more money.
So as you take care of your gift-giving list, think about how you can pay yourself back on your tax return. These tips may not pay your holiday bills -- but every little bit helps!
To learn more on saving money on taxes, find out:
- What the 2008 presidential candidates will do to your taxes.
- Why some people like paying taxes.
- How the IRS has added insult to injury in the housing debacle.
