If there are stocks that you no longer believe in, you may consider selling them before year's end. The IRS will allow you to deduct up to $3,000 of your total losses on stock sales each year, Hobson said. Any loss that is greater than $3,000 may be carried forward to future tax years, she added.
This can get a little complicated, so talk to your accountant before you decide to sell, she noted.
Q: As much as a quarter of all charitable gifts are made during the holiday season. How can I make the most of the tax deduction?
A: Donating money around the holidays has always been part of the fabric of American society, Hobson said. Those who are considering donating money should do it before the end of the year to deduct it from their 2010 taxes.
The catch is that you can only deduct your donation if you itemize your taxes on your tax return, and your donation must be made to an IRS-recognized 501c(3) organization in order for you to qualify for the deduction, she added.
Before you donate, ask if the organization is a 501c(3). You can confirm the nonprofit's status by reviewing the IRS's publication 78. It's available at www.irs.gov. Don't forget to save your receipts with any donation.
Also, remember that you can deduct the fair value of donated items, such as furniture and clothing. The IRS requires that any such items be in good conditions. Most people may have a hard time determining the fair value of their items, but there are websites – such as www.itsdeductible.com (from the makers of Turbo Tax) – that can help. These websites values the items based upon actual sales of similar items, she said.
You may even deduct the mileage – up to .14 per mile – that you drive to and from the place where you volunteer, she added.
Also, you are allowed to give any individual a tax-free gift of up to $13,000 a year (twice that amount if the donors are a married couple). The gift won't reduce your current taxes, but it will help someone else in need and they won't have to pay taxes on it, she said.
The end of the year is a great time to get your paperwork in order for your tax return. Make sure you collect all of your receipts and statements. Not only will this save you time while preparing your tax returns, it will also protect you if you are audited.
Although many people get excited by a large tax refund, what you are essentially doing is loaning the government money interest-free with each paycheck. Instead you should consider lowering your withholdings, so you get a larger paycheck and a lower refund. This way you get the money earlier so you can use your money now on whatever you want.
If you do not expect your tax rate to change in 2011 and you are self-employed, consider waiting until January to bill for your December services. This way you will not pay taxes in 2010 on what you earned in December. If you are expecting a bonus, try and see if your employer will pay the bonus after Dec. 31.