New year's deadline for tax deductions

Donations to charities like Gleaners Food Bank are tax deductible.
Published: .
Updated: .
Mary Milz/Eyewitness News

Indianapolis - You still have several months to file your income taxes but just hours to take action to reduce your IRS bill.

"You have to make certain deductions and payments and credits before the end of the year to take them on your tax return," said Jodie Reynolds, IRS.

This year, with Wall Street's troubles, widespread layoffs and a housing slump, most people could use any tax break they can get.

"Whether it's $100 or $5,000, it's all your money and it's worth looking into," said Reynolds.
Matt Will, a finance expert with the University of Indianapolis, says to consider selling any non-retirement investments that lost money.

"The reason is you can take a deduction for those capital losses. They can offset other gains you may have had and if you have more losses than gains, you can carry them forward in other years. So it's a great way to save taxes, kind of the silver lining in the down economy," said Will.

At Oak Tree Financial in Carmel, Ed Snyder has kept busy keeping clients winners by selling their losers in the last week - stocks that tumbled in the market tumult.

"They're worth less than what you paid for them. That offsets whatever capital gains you may have had from a stock earlier in the year or if you have capital gains from something else," he said.

Also, if you have a medical flexible spending account, be sure to spend whatever might be left or you'll lose it on January 1.

Making an extra mortgage payment or paying your property taxes before year's end can also cut your tax bill.

"You have to pay your mortgage payment in January anyway," Snyder said.

Making an extra payment - or an early one - in 2008 will increase your mortgage interest deduction. But you may have to pay that electronically Wednesday to qualify.

"Not a ton, but with two days left, it's something," Snyder said.

Paying tuition and fees for the next semester can also trim your tax bill, especially if the school is located in a declared disaster area because of last summer's floods. Then you get to double the tax credit.

"Generally the education credit is up to $2,000 but if you or your spouse or dependent attend an educational institution in a flood area you get to take up to $4,000," said Reynolds.

"I just mailed a College Choice deposit to save a thousand dollars on my Indiana income tax," said father Kurt Rasmussen outside the main post office downtown.

The contributions to 529 College Choice accounts by 11:59 p.m. on New Year's Eve to get the 20 percent tax credit.

"It's a great deal," Rasmussen said.

Another good way to get a tax break: donate cash, clothing or even your car to your favorite charity.

While new year's babies get all the attention, the ones born just before midnight save Mom and Dad the most.

"If you have a child on December 31st or before that you're looking at an exemption for that child," said Reynolds.

Lastly, if you're thinking of tying the knot, waiting a day or two will save you from the marriage penalty.

"If you're getting married, don't do it today, elope January first and fly to Vegas!" said Will.

(Eyewitness News reporter David MacAnally contributed to this story.)