End-of-the-year taxes: 8 tips to help you save

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NEW YORK (AP) — The decorations are up, the shopping is underway and holiday parties line the calendar.

That means it’s time to think about your tax bill. A little effort now could add to the list of what you have to celebrate.

For starters, make sure you received your 2010 tax refund. As of Nov. 30, the Internal Revenue Service still had $153.3 million in undelivered refunds owed to more than 99,000 taxpayers. Most could not be delivered because of mailing address errors. Undelivered refund checks average $1,547, the IRS said.

Visit www.irs.gov and click on “Where’s My Refund?” to find out if you’re on the list. If you are still owed a check, make a note to have next year’s refund sent via direct deposit.

You can take some steps now to boost that refund.

Here are a few steps to consider, as recommended by Gregory Rosica, a tax services partner with tax advisory firm Ernst & Young, and Jackie Perlman, principal researcher for H&R Block’s Tax Institute:

Accelerate deductions and defer income

Make deductible payments and expenditures before the end of the year, and delay receiving any income you can until next year.

For example, local property tax bills due in January that are paid in December can be itemized in this year’s return. Or if you’re eligible for one of the education credits, prepaying tuition or fees may be a smart move.

To reduce income, independent contractors or small business owners who bill for their services might find it to their advantage to hold off sending an invoice until after the New Year. If you plan on selling an investment that has gained in value since you purchased it, wait for January to put off capital gains. And if you get an end-of-the-year bonus, it is likely worthwhile to ask for if you can collect it at the beginning of next year.

Sell losing investments

If you own a stock or other investment that’s lost value this year, selling before 2012 begins could help offset income and lower your tax responsibility. This can be particularly helpful if you’ve already sold another investment with a gain, because up to $3,000 of losses can be used to offset gains.

Save energy and tax dollars

Among the credits expiring at the end of 2011 is one that allows a claim of up to $500 for energy efficiency improvements to a home, including steps like installing new windows, a new boiler or insulation. This is a lifetime credit, so if you’ve already taken it in a previous year, you can’t claim it again. And the work has to be done by the end of the year for the purchase to qualify, so make sure you have someone lined up for installation if you’re not the do-it-yourself type.

Do some health care calculations

Medical expenses are deductible only to the extent that they top 7.5 percent of your adjusted gross income.

That’s a difficult threshold to reach. But if you’re near that line, prepaying an upcoming health insurance bill, or scheduling an elective procedure for before the year ends, could result in some of those costs being deductible. It makes sense to time your healthcare spending to maximize the potential for a deduction.

Make a major purchase

Through the end of the year, taxpayers have an option to deduct state and local sales taxes in place of state and local income taxes on federal returns. If you’re planning on making a major purchase like a car or household appliance soon, it might be worthwhile to do this month to boost that sales tax deduction. If a car is on your wish list, there are also credits of up to $7,500 available for plug-in electric cars like the Nissan Leaf and Chevy Volt.

Maximize work expenses

The special $250-per-year deduction for teachers who use their own cash to pay for classroom supplies expires at the end of 2011, so teachers should try to reach that limit before then. If you buy your own supplies, such as uniforms or computers for work, making the purchase before the end of the year can help boost unreimbursed employee expenses. Also consider pre-paying dues for unions and professional organizations, licensing fees and similar costs for 2012.

Keep searching for a job

If you’re out of work, don’t give up looking during the holiday season. Costs for looking for a job, including resume preparation fees and money spent traveling for job interviews, are deductible. Receipts, credit card statements, travel logs and related material to back up the claims are required, so maintain precise records.

Donate wisely

The holiday season is a popular time to make charitable donations, but cash dropped into a street corner kettle is not deductible. You must have receipts, credit card statements or cancelled checks for all donations, and any donation over $250 also requires an acknowledgement letter from the charity that received it.

For seniors over 70½ years old who are required to take an IRA distribution before the end of the year, an expiring provision that allows that distribution to go directly to charity may be a tax boon. Up to $100,000 that is sent straight to a cause doesn’t count as income. While you can’t claim the charitable deduction, it still might be a smart move because keeping total income down could reduce taxes on other income, including Social Security benefits.

These strategies can help, but at this point in the year it’s often a game of catch-up to try to manage your tax bill. It’s a great moment, however, to start thinking about your 2012 taxes — that return you won’t file until April 2013. If you are expecting a big tax bill or a large refund for 2011, for example, it’s a good time to adjust your withholding for next year.