In General: Defer income and accelerate deductions, harvest tax losses, maximize retirement plan contributions, avoid tax underpayments through withholding and estimated payments, and consider your exposure to the alternative minimum tax.
Car Donations: If you itemize your deductions you can donate a car (see previously featured article) to a qualified charity and deduct the fair market value of the car. Beginning in 2005, if you donate a car valued at more than $500 and the charity sells the car, you may only claim a deduction for the amount the charity receives, not the amount that you determine to be the fair market value.
Sales Tax Deduction: As a result of new tax legislation for 2004 and 2005, if you itemize your deductions, you can deduct the greater of either your state and local income taxes or your state and local sales taxes, but not both. This change will primarily benefit people in states with no state and local income taxes. Although, this change may even be advantageous for people who live in a low tax state or for people who have purchased big ticket items.
Year-End Donations: If you are planning a year-end donation to your favorite charity, consider giving shares of publicly traded stock or mutual fund shares that have substantially increased in value over the years. Provided you have owned the shares more than one year on the date of the donation, you can deduct the fair market value and not have to recognize capital gain on the increase in value on your Form 1040. Also, if you are considering donating cash but will not have the money until next year, charge your gift to a credit card this year. As a result, your donation is deductible this year even though you do not pay your credit card debt until next year.
