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2008 Year End Tax Planning Tips

The following strategies may reduce your 2008 tax liability:

Decrease Taxable Income.

  • It may be advantageous to have your employer defer a bonus that may be coming your way until 2009.
  • Consider increasing contributions to your health savings account (HSA).  Note that if you become eligible to make health savings account  contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2008.
  • If you have unrecognized capital losses, consider taking them in 2008 to reduce AGI by offsetting capital gains and $3,000 of ordinary income if capital losses exceed capital gains by at least that amount.
  • Consider increasing contributions to 401(k) plans, SIMPLE pension plans and Keogh plans.

Increase 2007 Deductions.

  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.  For example, consider extending your subscriptions to professional journals, paying union or professional dues, enrolling in/paying tuition for job-related courses, etc., to bunch into 2008 miscellaneous itemized deductions subject to the 2%-of-AGI floor.
  • If you expect to owe state and local income taxes when you file your return in 2009, request that your employer increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2008.  Those facing a penalty for underpayment of federal estimated tax may be able to eliminate or reduce it by increasing their withholding.
  • Consider paying contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may also want to consider settling an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • If you’re thinking of donating a used auto to charity, inquire whether the charity plans to sell the car or use it in its charitable activities; the latter may yield a bigger deduction.


  • You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $12,000 in 2008 to an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next.
  • If you are age 70 1/2 or older, own IRAs (or Roth IRAs), and are thinking of making a charitable gift before year-end, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer can achieve important tax savings.

Separate IRA Accounts.

  • December 31, 2008 is an important deadline for individuals who inherited an IRA from an IRA owner who died in 2007. Where there are multiple beneficiaries for the IRA, splitting up the account into several accounts no later than Dec. 31, 2008, can yield important tax and other benefits for each beneficiary.
  • The benefit of this action is that IRA distributions can be taken out over each beneficiary’s life expectancy, rather than the life expectancy of the oldest beneficiary.  This provides the maximum tax deferral of the IRA distributions.

Some of these strategies are inappropriate if you are subject to AMT.  Of course, deferring taxable income to 2009 could result in an overall higher tax liability if the next administration increases marginal tax rates or if you otherwise expect to be in a higher bracket next year.  Accordingly, you should consult with us or your tax advisor before implementing any of these strategies.