The holiday season, with the excitement of a brand new year on the horizon, is full of fun and optimism. It’s also time to face a not-so-jolly end of year reality: income tax time is right around the corner.

"Waiting until April 15th to think about tax savings can be too late," CPA and tax expert Mitchell A. Franklin, PhD, tells Synergy. So consider taking some time in December to check out practical, proven strategies that might reduce your 2010 tax bill come next spring.

Donations Are Good For Charities and Your Tax Bill

If you’re planning on giving money to charities, write those checks before the end of the year for 2010 tax deductions. In addition, don’t forget you can get tax breaks by donating items (everything from a clunker car to clothes and household items) to charitable groups like the Salvation Army that accept property. Just do it before 2011 rolls around.

How much can you actually deduct for those out-of-style clothes or a ten-year-old couch? Sure, you may think that disco outfit is so retro it’s a $100 collectible, but the IRS is probably not going to agree. Any inflated value for donated property can throw out a red flag to the IRS.

"For example, in recent years some people were giving away cars that didn’t run and taking the tax value as if the car had been in excellent condition. The IRS came down hard on this practice," says Franklin, who is an assistant professor of accounting in Syracuse University’s Whitman School of Management.

So how do you come up with a realistic value for donated property? "The rule of thumb is to use what these goods are selling for on the open market. Be aware that the IRS may want to know what you are basing your value on," Franklin answers.

Here are some easy ways to come up with reasonable values for your tax-deductible property donations:

• To find out what donated clothes are worth, look at what similar items are selling for at thrift shops, on the internet, or at garage sales.
• Donating pricier items like a stereo, game system, or computer? Check out eBay and try to find a similar model. See what it sold for, make a note, and print out the page. "If the IRS questions your deduction, you’ll have something to support your donation," Franklin says.
• If you plan to give away a car to charity, use the true value. Refer to Kelley’s Blue Book price guide, available on-line, but don’t inflate the condition of the automobile. Taking a picture of the car to show its condition is a smart move, too.

What To Pay (And Possibly Buy) Now

If your property taxes aren’t due until January, don’t wait to pay them. "Pay before the end of the year so you can take the property tax deduction on this year’s income tax," Franklin explains.

What if you need a new computer, printer, and other gizmos for your home office? Should you go ahead and buy the stuff you need by year end and claim it all as tax deductible business expenses? First of all, be aware that home office deductions will cause IRS computers to zero in on your tax return.

"If people have a lot of home office deductions they are going to be prone to be audited. That’s simply a fact," Franklin tells Synergy. That doesn’t mean you should not buy what you need. Just keep the appropriate documentation. "An audit is not something to fear as long as you can substantiate costs and support any business expenses you make," says Franklin.

"For example, if you buy a new computer and you use it for a home office expense, have evidence you’re using it strictly for business expenses. If your old computer still works, put it in another room and you can show the IRS that one is your personal computer."

Money-Saving Advice About IRAs

One thing you don’t have to rush when it comes to your income tax strategy is your Individual Retirement Account (IRA). "Although not everyone qualifies, if you’re in the right situation you have until April 15th of next year to contribute to a traditional IRA and have it count for 2010. This can be an important tax advantage because traditional IRA contributions are made pre-tax. You’ll get a tax deduction now, but you’ll have to pay taxes on the money when you take the money out later," Franklin explains.

For some people, a Roth IRA is a better choice. "Unlike the traditional IRA, you get no tax deduction now with a Roth, but earnings come out tax-free when you reach certain criteria later on," Franklin explains. "If you’re in a situation where you’ll be in a lower tax bracket when you retire, you’d be better off in a traditional IRA."

However, Franklin predicts that taxes will likely rise and most people are not going to be in a lower tax bracket in the future. "Looking at where taxes are likely going to go, if you are now in your 30s and 40s, by the time you retire you’ll probably be in a considerably higher tax bracket. That’s why, in most cases, I’m advising people to put money into a Roth IRA. They won’t have the tax deduction now, but they’ll get it out of the way so when they take their money out later they won’t be paying a higher tax rate."

Looking Ahead To 2011

Don’t panic about increased income taxes in 2011 and beyond. Instead, Franklin advises, be pro-active and figure out ways now to save on next year’s taxes. "For example, if your employer has a 401K retirement plan, maximize that contribution because everything you contribute is pre-tax. In addition, take advantage of a health savings account; maximize your contribution and use it," he says.

A good game plan is to work with an expert. Franklin recommends using a CPA with income tax and income planning experience who can help you maximize your deductions and minimize or shelter income. "If you wait to ask for advice at tax time, it can be too late," he says. "You need to talk to your CPA throughout the year when you engage in transactions, and even before they actually occur, to see what the impact will be on your taxes."

What if you have last-minute, non-complicated 2010 tax questions? Try going to the IRS directly. "They aren’t waiting to pounce on you; the folks working on the help line are not your enemy," says Franklin. "While they aren’t going to answer complicated questions, they can give general advice and explain what forms you may need. That’s what they are there for."

• The IRS Help Desk is available , toll-free, Monday through Friday: (800) 876-1715
• Online assistance: www.irs.gov

Sherry Baker is a writer from Atlanta, Georgia. She last wrote What Are You Cooking For Thanksgiving? Make This Your Healthiest Turkey Day Ever! Sherry can be reached at featuredstories@adamcorp.com