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Robert Caldwell, CPA, EA, RFC, with Caldwell and Bryant Financial Advisors in Jackson, Tennessee, consults with a client on year-end tax strategies.

It is that time of year once again, to make a list and check it twice, only this one is to ensure that Uncle Sam doesn't find you naughty but nice. Many accountants would say that in terms of taxes, December 31 might be a more important date than April 15. Extensions can be filed to avoid the April deadline, but the end of the tax year is fixed as is your tax liability, credits, deductions, and income. Now is the time to do some tax planning by reviewing your tax situation, the recent changes in the economy and tax laws, as well as to assess what strategies may help reduce your tax liability.

"In 2007, we had to work one third of the year to satisfy our combined tax obligations, which is terrible and is nothing more than legalized confiscation," says Robert A. Caldwell, who is a Certified Public Accountant (CPA), Enrolled Agent (EA) and Registered Financial Consultant (RFC) with Caldwell & Bryant Financial Advisors in Jackson, Tenn. "This is why tax planning is so important. As I tell my clients, it is not what you get that counts, but what you get to keep that counts."

Perhaps your first approach would be to contact a tax professional who can assist you in determining the best tax strategies for your individual financial situation and circumstances. "As is the case each year, there were both favorable and unfavorable modifications to the tax laws in 2008," said Kathy Watts, CPA and a partner with HORNE, LLP in Jackson. "The current financial situation of the country generates tax loss situations that have not been faced in recent years, as well as a more urgent need to maximize current cash flow, which involves taking steps to minimize tax payments whenever possible."

"To get started, get out last year's return and look over it for possible mistakes, such as missed deductions, missed tax deferral or tax savings opportunities," said Caldwell. "For example, have there been any events occur that cause major life changes, such as births, deaths, marriages, divorces, promotions, inheritances, bankruptcy, retirement, significant business changes, etc that may impact your tax liability?"

"Year-end tax planning tips typically fall into two general groups," Watts said. "The traditional strategies that have proven themselves useful time after time take in to account the individual's particular needs and circumstances. Also, new opportunities have arisen from recently enacted tax legislation. In 2008 Congress decided to let several provisions expire, while extending or enhancing others."

"One of the most basic tax strategies involves accelerating deductible expenses in 2008 and deferring income, if economically feasible, into 2009," she added. "Delaying taxable income may also prevent you from losing lucrative tax breaks that can be reduced or eliminated all together as your income level rises and propels you into a higher tax bracket."

"Determine whether you will take the standard deductions or itemize," said Caldwell. "It may be best to bunch deductions into 2008 or 2009 in order to itemize deductions for at least one of the years, depending on your probable tax bracket at year end and for the next year in order to maximize the tax value of deductions."

"Examine your investments to minimize your capital gains income and maximize the benefit with any capital losses," said Watts. "This has never been as important as it is this year in the current economic environment. Long-term capital losses can be used to offset long-term gains, but for tax purposes, it is important to remember it's not how much the value of your stocks has declined for the year but how much gain or loss you realized since purchasing them."

The end of the year is also a good time to look at your annual contributions to your retirement plan. "Check to see that you have contributed the maximum allowed into your retirement plan. Individual Retirement Accounts (IRAs) offer only relatively small deductions but can be set up in 2009 and still be deducted on the 2008 return. Any other contribution to a qualified plan must be made by December 31," said Caldwell. "If you do not have a retirement plan, establish one by the end of the year and contribute as much as you can. There are retirement plans for every type and size of business. A financial planning specialist will point you in the right direction to meet your needs."

For estate planning as well as tax purposes, devise an annual gift-giving plan for family members, Caldwell added. "In 2008, the maximum annual gift tax deduction is $12,000 per family member. Married couples can gift $24,000 per person by splitting their gift. In 2009 this exclusion will increase to $13,000 for individuals and $26,000 for couples."

This year has seen many changes to the tax law, the tax professionals said. Congress has passed many provisions designed to stimulate the economy, and much of the tax legislation passed has renewed or enhanced individual taxpayer's benefits. As some of these benefits affect only 2008, while others carry over into 2009, it is important to take action now, they added.

"The Emergency Economic Stabilization Act of 2008 (EESA) included some valuable individual tax incentives covering a wide spectrum of activities," said Watts. "It has some good news for those who are liable for the alternative minimum tax (AMT). The 2008 patch raises the exemption amount once again but only for 2008. Additionally, it also allows taxpayers to take nonrefundable personal credits to reduce their AMT liability."

"The EESA extended the deduction for taxpayers who itemize deductions for state and local general sales taxes for 2008 and 2009," she continued. "It also extends the additional standard deduction for real property taxes for those individuals who do not itemize their deductions in 2008 and 2009. Another aspect of the act is that it provides further relief to victims of certain natural disasters during 2008 above what individuals and businesses are allowed to deduct for casualty and theft losses."

"For certain taxpayers age 70½ and older, the EESA extends through December 31, 2009, the opportunity to make tax-free distributions from IRAs for charitable purposes," said Caldwell. "I think we all need to look at our charitable giving not only for tax purposes but because many of these organizations have been affected by the changes in the economy as well."

"The EESA also extends through December 31, 2009, the above-the-line higher education tuition deduction," said Watts. "This allows eligible taxpayers to deduct the cost of qualified higher education expenses paid during the year for themselves, a spouse, or a dependent."

"These are just some of the many tax planning issues that are available for consideration," Caldwell said. "If someone is serious about reducing their tax bill, seek the services of a tax professional. Look for someone who deals with tax matters year round, and who is truly interested in helping you pay the very least tax that is legally possible."

"Tax law is complex and can make it difficult to determine what year-end strategies are best for your financial situation and individual circumstances," said Watts. "I strongly recommend contacting a CPA to discuss tax strategies, tax breaks, incentives, and the new tax rules created under the recent rescue package as well as traditional year-end tax strategies. Now is the time to develop a strategy that maximizes your tax savings for this year and prepares you for next year."

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