Iowans who got a hefty salary boost in the past year, claimed a sizeable inheritance or won a big lottery prize may be facing tax troubles in 2008. Jeff Strawhacker, a C-P-A in West Des Moines, says there’s still time to make tax-deductible donations in the remaining hours of 2007 to help your bottom line, but the trick is, knowing how much to donate.
Strawhacker says: "To look at your year end tax liability, you really do need to have a good idea where you stand compared to the prior year. If you don’t want to do a full mock-up, you can take last year’s return and compare the current year’s data and determine if you need to make some additional contributions to knock that income down, that tax liability down a little bit." If you plan to donate cash, goods or even a car to charity, it’ll need to be done before January first for it to apply to 2007’s taxes. Strawhacker says there is a new requirement this year as far as charitable giving — there must be a paper trail.
"Your contributions need to be documented by either a bank record, a canceled check or a statement showing the name of the charity, or a written communication from the charity,"Strawhacker says, "that’s something important to keep in mind when you’re figuring out where you’re at a year end." Some taxpayers might consider paying a few of next year’s bills early, like real estate taxes, mortgage interest and vehicle taxes, to raise deductions for this year and lower their taxes.
Strawhacker says that might be a helpful strategy, but it’s not for everyone. Strawhacker says: "It depends on the person’s situation. If they’re looking for some last-minute deductions, you can pay that January mortgage payment in December. You can pay those March property taxes in December to advance that deduction into 2007. Now I caution people when they do that, they also have to look at the impact on the 2008 return. It’s not just a simple good in 2007 but also consider the effect on 2008." Find more year-end tax tips at the IRS website .