2007 Tax Planning

[Beccagold]

You all were very helpful with my last question, so here's another one!

I am in Sales, and it looks like I'm going to have a very good year. Do you have any recommendations for planning now on how to save on taxes for the year? I am maxed on my 401k, and do not qualify for the Roth IRA. Let me know what other info you might need. TIA!!!

[sweeps]

Congratulations.

One possibility is you could stash your short-term savings in Vanguard's New York Tax-Exempt MMF. (Currently yielding 3.58% and that is exempt from federal and NY state taxes.)

Another thing you may want to look into is in 2010 the income limits on conversions to Roth IRAs will be eliminated. You could contribute to a nondeductible traditional IRA and then convert to a Roth in 2010. Some information is here. There is a small risk that tax laws may change again before then.

[sweeps]

Also if you are relatively healthy, you may want to consider a Health Savings Account (HSA) paired with a High Deductible Health Plan (HDHP).

[tabbycat31]

do you own your home? What about energy efficient home improvements (tax credit), buying a hybrid vehicle.

[Beccagold]

do you own your home? What about energy efficient home improvements (tax credit), buying a hybrid vehicle.

We do own our home, however it's a townhome, so I don't believe there is much that can be done. I have considered a hybrid, unfortunately, we purchased both our cars in 2005, so it doesn't seem like the best move to buy yet.

Thanks for the suggestions!

[Homebody]

Be sure to keep track of unimbursed expenses, milage? lunches with clients? That kind of thing.

[b4freedom]

Bottom line: Once you hit a certain income point, deductions starts to disappear faster then free donuts at a police station and your taxes seem to start skyrocketing. Unfortunately, that point isn't very high if you live in an expensive area and still consider yourself middle class.