7 End-of-Year Tax Trimmers

Decisions in the final months of 2011 can have a big impact on how much you could potentially save in 2012.

By SHARE

With the end of the year fast approaching, it's smart to be thinking about your taxes now, even if they aren't due for another five months. The reason is obvious: It will be your earnings and spending this year that will determine how big of a check you'll be writing Uncle Sam next year.

Major decisions in the final months of 2011 can have a big impact on how much you could potentially save in 2012, which, in part, depends on the tax brackets. Here are seven ways you can reduce your tax burden in the short time that's left this year.

[See 10 Ways to Start Earning Extra Money Now.]

Donate: 'Tis the season to be giving–-whether it's an old car, checks to charities, or anything else of value given for no personal gain. You can see serious deductions come tax time, as long as you remember to itemize.

Sell off bad investments: Up to $3,000 worth of stock market losses can be deducted from what you owe the federal government. It's wise to sell before the year is out if you have little confidence in particular investments improving–-in order to gain something from them.

Pay your December mortgage payment in December: Your mortgage repayment, unlike rent, is due at the end of the month of occupancy rather than beforehand. This means if you can pay your December mortgage before the first of the year, you can get an extra deduction for the added interest.

[See 4 Ways to Pay Off Your Mortgage Quicker.]

Hold off bonuses and extra income: It's obvious but easily forgettable when we all need extra money around the holidays, but if you can manage to put off bonuses and/or as many payments as possible until the new year, you can lower the amount of money subject to state and federal income tax.

Max out your 401(k): Every dime you dump into your 401(k) is immune from IRS bean counting. If you haven't met the 2011 $16,500 tax-free maximum, then get as close to it as possible.

[See How to Maximize the Higher 401(k) Contribution Limit.]

Pore over out-of-pocket medical costs: If the money you spent out-of-pocket for medical expenses amounts to more than 7.5 percent of your adjusted gross income, you are entitled to have these costs count as deductions.

Get married: Most dream weddings occur in the warmer months, but if an engagement is extended to spring, it may be smart to reconsider your plans and get hitched before the first of the year for tax purposes. But don't count out having your wedding cake and eating it, too: Get it legally activated now, and save the ceremony for when the weather is more appropriate. Then, use your tax savings next year to splurge on your honeymoon.

Nobody wants to think about what they owe Uncle Sam at a time when they'd much rather focus on their family, but there's perhaps no better time to trim your taxes than in the last months of the year.

Jim Wang writes about personal finance at Bargaineering.com. When he's not tackling money issues, he's usually looking forward to his next vacation and writing about it at Wanderlust Journey.