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It's
not too late to make significant changes to your 2000 tax situation,
changes that can affect the amount of tax you owe, or the amount of refund
you receive, in April, 2001. Here are several pointers that can help
you take control of your taxes before the year ends.
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1.
Reschedule
deductions. If you expect to owe additional taxes for 2000, you can
pull some of what would be your 2001 itemized deductions back into
2000 by making early payments of expenses such as your mortgage (which
will provide you with an additional month's interest deduction), or
your first quarter state tax estimated payment, or deductible medical
bills that you don't owe until January. Turning these expenses into
2000 deductions of course means you will reduce the amount of
deductions you will have in 2001, so you should take that into
consideration when you make this decision.
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2.
Sell stock. If you own some stock that has lost money and you have
little hope of it rising in value, you may want to consider taking
your loss now. Up to $3,000 in losses on sales of stock is deductible
in one year. If you sold some stocks at a gain, you can offset the
gain with additional losses, in excess of the $3,000. In other words,
if you have capital gains of $2,000, you can take a deduction for up
to $5,000 in capital loss on your 2000 tax return.
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3.
Make a retirement contribution. If you own a tax-deferred
retirement plan, such as an IRA or a 401(k), and have the opportunity
to make a contribution before the end of the year, you can reduce your
taxable income by the amount of your contribution. Check the rules and
income limitations that apply to these contributions before you write
your check to make sure your contribution will be eligible as an
income reduction. Contributions for 2000 to IRAs can be made all the
way up to April 16, 2001.
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4.
Change your withholding. You probably still have two or three
paychecks coming to you before the end of the year. If it looks like
you're going to be getting a fat refund in April, consider changing
your withholding on your last few paychecks so that you'll have a
little extra cash now instead of waiting until spring to get your
refund. You can use that extra money for holiday spending, or tuck it
away and let it go to work earning interest or dividends for you right
now. Alternatively, if you're going to owe a lot of money on your tax
return, consider increasing your withholding before the end of the
year to help soften the blow in April. When calculating penalties for
taxes that you underpaid, income tax withheld from your paycheck is
treated as if it had been withheld evenly over the course of the year,
even if the bulk of the withholding occurs in December.
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5.
Make
contributions. This is one of the easiest ways to cut your taxes, if
you itemize your deductions. Make contributions to your favorite
charity before the end of the year, and take a tax deduction for the
amount you contribute. If you're short of cash and don't have the
money to make a donation, consider cleaning out the closets, attic,
and basement. Donate outgrown clothing, furniture you no longer use,
old toys, sports equipment, and other items that are just taking up
space. For information on how to value the items you donate, see http://www.funwithtaxes.com/ValuationTable.htm
on the Internet.
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6.
Make tuition payments. Consider the timing of school tuition payments
for the students in the family. If you qualify for the Hope
Scholarship Credit or the lifetime learning credit, and you haven't
yet maximized your credit for 2000, consider paying second semester
tuition before the end of the year to increase your credit for 2000.
These credits were described in detail in this column, September 11,
2000. You can view the column on the Internet at http://www.funwithtaxes.com/Past_Articles/09_11_00.htm
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