Year-end tax tipsPosted: Updated:
'Tis the season for lots of Santa sightings, but he's not the only gray-haired man with a beard you need to be thinking about in December.
You also need to be watching for Uncle Sam.
"So there is some uncertainty there where the economy may go and where you might be with your taxes," said certified public accountant Ralph Willett.
A number of tax breaks are expiring and that could mean you owe extra money. The most significant deals with people who foreclose or short sale on a home. Unlike the past several years, the difference between what you make and what you owe will count as income, if Congress does not act.
"So anybody who ended up having forgiveness of debt this year will have a tax consequence and end up paying taxes on it and it also goes not just for homes, but for credit cards or student loans," Willett said.
But he said there are ways to cut your tax bill, as well. First, donate to a 401K or an IRA. Even a small amount can help.
"If you are in the 15 percent bracket and you give a thousand dollar deduction, you are going to save 15 percent of that, so you will pay $150 less," Willett said.
He said don't forget in Arizona, medical expenses are fully deductible and you can help yourself now for savings on Tax Day.
"There are some electives, for example vision or dental work, go ahead and do those now because it will be a deduction for you," he said.
Even mileage to and from doctors and dentists is deductible.
"What they need to do is keep track of mileage, particularly if they are in the southeast Valley or the West Valley and they go to see a specialist in Phoenix, that is 30 miles one way," Willett said. "That starts to add up."
Remember, child care is deductible but only if the provider reports the income, but that can be a big savings for you.
On the other hand, a big mistake is not having enough withholding taken out of your paycheck.
"And if it is 2 percent, you know your tax rate is more than 2 percent, you are going to be under-withheld and you are going to have penalties later, 5 plus percent," he said.
And, finally, while you can still figure taxes by hand, Willett said using some tax software can save you both time and money.
"And if you do it by hand and you make a mistake, you are going to have some penalties on the back end," he said.