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Six Tips to Trim Your 2007 Taxes Before the Year Ends

You only have days and hours until December 31, to make the final tweakings that could lower your 2007 tax bill. But that's still plenty of time to take advantage of these money-saving year-end tax tips.

1. Figure out if you owe the Alternative Minimum Tax

file taxes 2007

Tax day will be here sooner than you think, but there's still time to reduce your bill as much as possible.

The Alternative Minimum Tax (AMT) was first introduced in 1970 to make sure that a small amount of high-income households who were eligible for many tax benefits would still owe income tax. However, as time went on, increasing numbers of people became eligible for the tax. This year, however, a one-year "patch" has been introduced that will save nearly 23 million Americans from having to pay the tax.

Specifically, 3.7 million taxpayers earning $50,000 to $84,000, and 7.8 million taxpayers earning $84,000 to $121,000, will be exempted from the tax (and may save an average of nearly $1,500), according to Citizens for Tax Justice.

This is important because you must calculate your income tax under both the regular rules and the AMT rules. You owe whichever is larger.

If you take too many deductions, it can actually work against you by triggering the AMT. If you know you won't fall into this category, however, you can try for increased deductions (such as paying your mortgage interest and real-estate taxes for January by December 31 so you can deduct it from this year's taxes).

2. Make Charitable Donations

Any donations you make this year count for 2007 (even if they're processed in 2008). Remember that you must have a receipt, bank record or other record of your contribution from the agency for it to qualify. Items donated must also be in good condition for them to qualify for a deduction.

Also, for those who are 70 1/2 or older, you can make a donation to a charity for up to 100,000 directly from your IRA, without being subject to income tax. You won't get a deduction on the donation, but you also won't be pushed into a higher tax bracket. This provision is set to expire this year, but may be reviewed again next year.

3. Contribute to Your Retirement Plan

Make sure you have maxed out your contributions for the year. Those contributing to retirement plans like 401(k)'s can contribute $15,500 this year (those 50 and older can contribute an additional $5,000).

4. Medical Expenses

If you know you're going to qualify to deduct your medical expenses (they must exceed 7.5 percent of your adjusted gross income), go ahead and pre-pay this year for whatever you can (medications, doctor's bills, etc.). This way you'll have a larger deduction. If your medical expenses won't exceed the limit, then by all means wait to pay.

5. Sell Your Losing Stocks

By selling stocks that you've lost money on, you'll be able to use the losses to offset any gains you've made on other investments. You can also use up to $3,000 in losses against other income, including your salary. If your losses are substantial, you can even save losses you can't use this year and apply them to next year.

6. Prepay for College Classes

If you'll be taking classes in the first quarter of 2008, you can prepay the tuition now and get a 2007 tax benefit from the Hope and Lifetime Learning credits.

Recommended Reading

The Most and Least Tax-Friendly Places to Live in the USA

Norway Seriously Considers an Obesity Tax. Should the U.S. Impose One Too?

San Jose Mercury News December 20, 2007

MSN Money December 18, 2007 December 14, 2007

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