Little time left for cutting your '07 taxes

By Jeff Schnepper

The holidays are here, and they definitely will divert your attention.

This is my last reminder for you to take a few minutes from holiday merrymaking and get those last-minute tax moves done. You have until Dec. 31. After that, there's little you can do to cut your tax bill.

Here's what you can do before the end of the year to trim your 2007 tax bill. I'll start with the simple things.

The stuff you need to do now

Charitable donations. If you contribute to your church, your college, the local dog pound, United Way or organizations contributing to disaster relief, make these donations by Dec. 31. And make sure that before you file your tax return, you have a receipt from the organizations that benefited from your generosity.

If you don't have the cash, find out if the organization can process a donation via credit card. As long as the donation is made by Dec. 31, it's valid as a 2007 deduction.

• Talk back: What money moves will you make by Dec. 31?

Separately, any contributions of clothes or household goods must be in good condition or better to qualify for a deduction. If a single item has a value of $500 or more, you will need an appraisal. The Internal Revenue Service can deny deductions for items of minimal value.

Complicating any deductions will be new requirements on record keeping. This is important.

To deduct a cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing its name and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Your flexible spending account (FSA). This isn't exactly a tax savings, but if you don't use the dollars you contribute to a flex plan, you lose them.

The IRS allows purchases made through March 15, 2008, to count. Your employer can give you a debit card for your FSA spending. You can even pay for nonprescription drugs through an FSA. That eliminates a whole lot of paperwork.

Be careful, however. The IRS may allow the extended March 15 date, but, unless your employer's plan is amended to allow it, you won't qualify.

Mortgage interest. Make your January mortgage payment Dec. 31. Send in a check or pay it online.

Remember to add the interest you paid to what your bank reports on its Form 1098. Your bank will get your payment in 2008 and won't report it for 2007.

But because you paid it this year, it adds to your 2007 deduction. (The downside, of course, is that you won't be able to deduct the payment from your 2008 return.)

Real-estate taxes. If you pay your own real-estate taxes, make any payments due in the beginning of 2008 by Dec. 31. My fourth-quarter real-estate taxes are due Feb. 1. By paying them Dec. 31, I get the deduction a year earlier. (Again, you can't deduct payments made in 2007 from your 2008 return.)

A friendly warning: Taxes aren't allowed as a deduction under the alternative-minimum-tax computation. If you expect to get hit by the AMT, don't prepay.

Medical and miscellaneous deductions. Medical expenses and miscellaneous itemized deductions have "floors." For medical expenses, only those in excess of 7.5% of your adjusted gross income (AGI) count. Miscellaneous itemized expenses have to exceed 2% of your AGI to qualify.

An important point: Your health insurance premiums count so long as you're not paying them out of a flexible spending account.

If you're going to exceed the floor, accelerate your expenses. Prepay your orthodontist or your tax preparer. Send in your payment either online or via the U.S. mail by Dec. 31. Alternatively, if you're not going to exceed your floors, defer the deductions to 2008. You may exceed your floors then.

Pension or IRA contributions. These are especially important if you are self-employed. Unless tax rates shoot up, you want to pay your tax "tomorrow" rather than today.

If you're contributing to a retirement plan such as a 401(k) plan or a 403(b) plan, you can put in $15,500 this year and the same amount in 2008. If you're 50 or older, you can put in an additional $5,000 as a catch-up contribution.

Continued: More ways to save

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