Top 5 Ways to Cut Your 2011 Taxes Now

Now that the holidays are over, shoppers who spent the last months focused on getting a good bargain in the mall can direct their attention to other ways to save money in the new year: their taxes.

Here are some last-minute tax-cutting tips from  Mellody Hobson, the president of Ariel Investments and personal finance contributor for " Good Morning America" and Ted Schwartz, investing columnist for ABC

1) Decide Whether You Want to Deduct State and Local Income Tax, or Sales Tax

One tax regulation that will expire at the end of this year says that you can deduct your state and local sales tax, or your state and local income tax, but not both.  This is particularly important for people who live in income tax-free states.  If you live in one of those states and are considering making a big purchase, do it before the end of the year so that you can deduct the sales tax, Hobson said.

2) Increase Your 401(k) Contribution and Lower Your Taxable Income

You can shore up your retirement savings and save on your taxes at the same time by putting more money into your 401(k) plan by the end of this year.  The more you put in, the lower your tax bill will be because you are putting in pre-tax dollars, Hobson said.

Schwartz, president and chief investment officer of Capstone Investment Financial Group, said you may be able to get a benefit if you open an IRA. You actually have until the due date of the tax return to open and fund an IRA for a possible benefit, April 15 for most people.

3) Make Your January 2012 Mortgage Payment Early  

Here are two easy ways to get paid later if you get things done before Dec. 31.  First, if you normally pay your mortgage on January 1, pay it one day early instead, on Dec. 31, so that you can get the interest tax deduction in 2011 instead of 2012, Hobson said.

Second, if you are considering making a home improvement related to energy efficiency, complete the project before Dec. 31 so that you are eligible for the tax deduction.  You can deduct 10 percent of the cost of the improvement, up to $500, if it is done before the end of the year.

4) Take Advantage of Tax Deductions if You Are a Higher Education Student or Teacher

If you are a couple filing together and make less than $130,000 per year, or an individual filing alone and make $65,000 or less per year, you can deduct up to $4,000 for tuition and fees through the "Tuition and Fees Deduction."

Also, if you are a teacher, you can deduct up to $250 that you spend on classroom supplies by the end of the year, Hobson said.

5) Remember That Charitable Contributions Are Fully Deductible if Itemized

Charitable contributions can be the gifts that give back come tax time, as long as you remember to deduct them from your taxes.  If you plan on making a charitable contribution, do it by Dec. 31 to get the deduction from your 2011 taxes.

Schwartz said the higher your tax bracket, say 25 percent versus 10 percent, the more you save on each dollar donated. It reduces your taxable dollars, so saves you the bracket percentage. For example, if you are in 25 percent bracket, each dollar you donate will save 25 cents in tax.

Schwartz said purchases this week that could also help save in taxes include business expenses. Other itemized deductions in addition to charitable donations are certain medical expenses.