The end of the year is approaching but it’s not too late to reduce this year’s tax bill. However you need to be careful not to do anything that will cause you to pay more in 2010 than you would save on your 2009 federal income tax. Here are three year-end tax strategies for individuals from the experts at smartmoney.com

1. Sell Loser Stocks Held in Taxable Accounts

Cut your losses by selling those doggy investments held in taxable brokerage firm accounts. The amount you lose can lower your 2009 tax bill because you can deduct capital losses against your capital gains for the year. If your losses exceed your gains, you’ll have a net capital loss for the year. You can deduct up to $3,000 of net capital loss against your 2009 ordinary income from salary, self-employment activities, alimony received, interest or whatever (the net capital loss deduction limit is only $1,500 if you used married filing separate status). Any excess net capital loss is carried forward to 2010 and beyond and will generate future tax savings.

2. Take the Standard Deduction

If your total itemized deductions are usually close to the standard deduction amount each year, consider the strategy of bunching together expenditures for itemized deduction items every other year. Itemize in those years to deduct more than the standard deduction figure. Then claim the standard deduction in the intervening years. Over time, this drill can save hundreds or even thousands in taxes by significantly increasing your cumulative write-offs. Why?

Because you’ll bag higher itemized deductions in alternating years and relatively generous standarddeductions in the other years. Regardless of what happens with future tax rates, you’ll come out ahead. For 2009, the standard deduction is $11,400 for married joint-filing couples versus $5,700 for singles and $8,350 for heads of households. For 2010, the numbers remain the same — except the standard deduction for heads of households increases ever so slightly, to $8,400.

3. Give to Charities

Thanks to this year’s stock market rebound, you probably have some appreciated shares (currently worth more than you paid for them) that you’ve owned for over a year. If so, consider donating them to IRS-approved charities. You can generally claim an itemized charitable contribution deduction for the full market value at the time of the donation and avoid any capital gains tax hit. On the other hand, don’t donate loser stocks. Sell them, book the resulting capital loss, and give away the cash sales proceeds. That way, you can generally write off the full amount of the cash donation while keeping the tax-saving capital loss for yourself.

Warning: You must itemize deductions to gain any tax-saving benefit from these charitable donation ideas.

source: smartmoney.com - Year-End Tax Prep Strategies for Individuals

The IRS has tightened several laws that you should be aware of that are efectively immediately - that means your 2008 tax returns due by April 15, 2009.

Prior to 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. However, the IRS changes regarding vehicle donations means that you will not be able to put the amount that “you value” your car on the tax return for a deduction. Written acknowledgements from the charitable organization for any donation over $500 are required.

Congress was concerned that people were inflating the value of donated cars under the former system. Claiming full blue book value for vehicles that had been turned down by the local junkyard is currently a thing of the past.

What IRS reported to Congress was that the charities that received the donated cars could not in some cases GIVE them away. Further, it was chronicled that subsequent to the law change donated cars decreased by 80 percent.

So if you still want to give your vehicle to a charity and use it as a charitable contribution, here is what you need to do:

Before you give your vehicle to a charitable organization:

• check out the charity
• see if you’ll get a tax benefit
• check the value of your vehicle
• see what your responsibilities are as a donor to a charity

Check Out The Charity
Make certain you are donating to a qualified organization. The most common are 501(c)(3) organizations, such as charitable, educational or religious organizations. To verify, refer to IRS Publication 78, Cumulative List of Organizations or call (877) 829-5500. Please note that churches, synagogues, temples and mosques are not required to apply to the IRS for recognition - so calling may be your best option.

Qualifying For A Deduction
You must take itemized (no standard deduction) deductions on your Schedule A of Form 1040.
You must attach Copy B of Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to your income tax return in order to take a deduction for the contribution of a qualified vehicle with a value of more than $500.

Determining The Amount You Can Deduct
A qualified vehicle is any motor vehicle manufactured primarily for use on public streets, roads and highways. They also could be a boat or an airplane.

Generally, the amount you may deduct for a vehicle contribution depends upon what the charity does with the vehicle as reported in the written acknowledgement you received from the charity. If the charity sells the vehicle, generally your deduction is limited to the gross proceeds from the sale.

If the value of the vehicle is less than $500 you can claim a deduction for the lesser of the vehicle’s fair market value or $500 - but you need to provide written acknowledgement from the charity that complies with the requirements described

If the vehicle contribution deduction is more than $500 you need a written acknowledgement from the charity with the following information contained in it:

• Your name and taxpayer identification number
• the Vehicle Identification Number
• the date of the contribution
• and one of the following
  • a statement that no goods or services were provided by the charity in return for the donation OR
  • a description and good faith estimate of the value of goods and services OR
  • a statement that goods or services provided by the charity consisted entirely of intangible religious benefits

If the charity sold the vehicle, the acknowledgement must contain proof by providing a statement of such, the date the vehicle was sold and the gross proceeds from the sale. There are some exceptions.

If the acknowledgement does not contain all required information, the deduction cannot exceed $500

You need the acknowledgement dated before the date of your return

If you are claiming at least $250 and not more than $500 you need the acknowledgement to include:

• the name of the charity
• a description of your vehicle and one of the following
• and one of the following
  • a statement that no goods or services were provided by the charity in return for the donation OR
  • a description and good faith estimate of the value of goods and services OR
  • a statement that goods or services provided by the charity consisted entirely of intangible religious benefits

You need the acknowledgement dated before the date of your return

One more thing …
Make sure you attach the written acknowledgement to your tax return