If you want to shrink your tax bill for the year as much as possible, then now is the time to take action. Wait until next April (or even January), and it'll be too late to make any of these smart tax-busting moves.

Decide whether to itemize or take the standard deduction

Choosing whether to itemize your deductions or take the standard deduction is probably the single most important decision you'll make regarding your tax return. If you don't even consider itemizing your deductions, you could miss out on thousands of dollars in tax breaks. On the other hand, taking itemized deductions when the standard deduction would be bigger is just plain silly.

Most taxpayers can get a sense of whether or not itemizing is a good idea just by looking at a few of the bigger deductions. For example, if you're making payments on a mortgage that you took out just a few years ago, then the mortgage interest deduction will probably make itemizing worthwhile all by itself (during the first few years, mortgage loans have the highest percentage of the payment going toward interest that they'll ever have, so you're most likely to have a substantial deduction). Other potentially large itemized deductions include the charitable contribution deduction, the medical expense deduction, and the state and local taxes deduction.

Taxes spelled out in blocks

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If itemizing, max out deductions

If your review of your potential deductions leads you to believe that itemizing is the way to go, then get the most out of those tax breaks by grouping as many deductible expenses as you can in the current year. For example, if you've planned to have extensive dental work done next year, move it forward to the end of this year so that you can add the charges to your current medical expense deduction. December is a great time to make lots of charitable contributions, whether you take part in some holiday donation drives or simply clean out your attic and donate everything you no longer need. After all, you don't even know whether you'll be taking itemized deductions next year, so moving as many deductible expenses as possible to this year guarantees you'll get a tax break for them.

Postpone your bonus

Companies that give annual bonus to their employees generally do so in December. Speak with your boss or HR representative to see if you can put off your bonus check until January 2018. A big bonus can significantly increase your income for the year, which might well land you in a higher tax bracket. So while it might be a bit painful to delay your bonus until after Christmas, the resulting tax savings can make it worthwhile.

Sell investments at a loss

If you sell any investments for a profit, you can expect to get hit with a capital gains tax bill. However, if you balance out those gains by selling other investments at a loss, you can avoid capital gains taxes altogether. Any losses you realize from selling investments are subtracted from the gains you made on other investments when calculating your capital gains for tax purposes. Thus, if you realized $1,000 in gains on investments you sold this year, you could sell some other investments that have lost $1,000 since you bought them and sell those as well, which would cut your capital gains tax liability to $0.

One big caveat to this advice: Never sell a losing investment solely for the tax break. If an investment has lost value but you still believe that it will reward you over the long term, then stick to your guns. Many of the market's best-performing stocks have suffered short-term dips on their way to massive long-term gains.

Take Netflix for example. In the last four months of 2011, the company's stock lost a whopping 77% of its value after the company announced a 60% price hike for its services. Shareholders who sold out might have cut their 2011 tax liability somewhat -- but they've also watched from the sidelines as the share price has since increased more than tenfold.

Take your RMD

If you are 70-1/2 or older and have money in a tax-deferred retirement savings account such as a traditional IRA or 401(k), the IRS demands that you take certain minimum withdrawals from those accounts (whether or not you actually need the money). Fail to take your required minimum distribution (RMD), and you'll be hit with a 50% penalty tax. For example, if your RMD was $3,000 and you only took $1,000 from your tax-deferred retirement accounts this year, the penalty will be 50% of the $2,000 you failed to take, or $1,000. An extra $1,000 tax bill is definitely not a pleasant surprise, so be sure to look up your RMD totals for the year and take the necessary withdrawals before Dec. 31.

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