Tax Tip from the week of December 19, 2005

It’s late in the year but there’s still time to trim your 2005 taxes. Consider these ideas.

Reduce your taxable income.


If you qualify, contributing to a traditional IRA will reduce your taxable income. If you’ve already made a Roth IRA contribution, you still have time to “recharacterize” it. A word of caution: Don’t let short-term tax savings affect your long-term retirement strategy. A Roth IRA might be a better long-term investment for some taxpayers.


If your company plan allows, make an extra deductible contribution to maximize your 401(k) contributions for the year.


If you’re self-employed, consider setting up a solo 401(k) plan before year-end. You may not get the full benefit this year, but you’ll be able to shelter some income.


Maximize your deductions.


If you itemize, make an extra contribution to your favorite charity. Or accelerate some of next year’s donations into this year. Don’t forget to add in your charitable mileage deductions.


If your medical deductions meet the threshold, consider buying new eyeglasses or contacts. They qualify as deductible expenses.


Add up your miscellaneous expenses for a safe deposit box, tax preparation fees, investment expenses, and work expenses. They’re deductible if they meet the threshold.


If you remodeled your home or bought a new car this year, check whether it pays to deduct state sales taxes instead of state income taxes.


Consider prepaying next quarter’s tuition and fees to boost your “above-the-line” deductions. Don’t overlook other non-itemized deductions such as student loan interest or teacher’s classroom expenses.
Seattle Bellevue Tax Accountants