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7 Tax Moves to Make This Month

Some people are wary of making any tax moves this month because President-elect Barack Obama and Congress are working on a stimulus package with new tax provisions -- but don't let the uncertainty confuse you.

Here are seven steps you can and should take this month.

1. Don't miss the mail

If you moved in the last year or so, it's time to send out change-of-address notices. Not to the post office, but to employers, tax agencies, brokerages, and anyone else from whom you expect to get any kind of 1099, K-1, 1098, or other third-party report.

2. Get your stimulus

The stimulus rebate checks in 2008 were a real boon for many people. But not everyone got one. The good news: If you didn't get it last year, you might qualify this year.

3. Assess your paycheck withholding

It's time to review your paycheck withholding so it reflects the income and deductions you expect to have for 2009. If you need to increase or decrease your withholding, file a new Form W-4 with your payroll department. Remember to file a copy for your state, too, if that needs to be changed.

What triggers a need to make changes? Marriage, divorce, a new home, more money going into your retirement account. You can fill in the W-4 online, print it out and hand it to your payroll department.

4. Estimate how much you'll owe

Jan. 15 is the due date for the fourth installment of your 2008 estimated tax payments. Typically, if you have enough withholding from your paycheck this won't affect you. But if you have earnings from a business or investments, you may find yourself needing to make a payment.

If you expect to owe less than $1,000 on April 15, you can skip it. Otherwise, be sure you pay enough to cover 90% of your 2008 tax liability or 100% of the tax shown on your 2007 tax return. Use Form 1040-ES, voucher 4. If you use the IRS site to get your forms, be sure to select the 2008 form.

If you can't pay your balance due in January, you could wait until April 15 to make the payment. This will result in an underpayment penalty, but it won't be significant on an average balance due. And, even though delaying payment is not an ideal plan, at least you'll know how much you owe by April 15 -- and that will give you time to find the funds you'll need.

There are free tools online to help you project your 2008 balance due. You also can use these calculators to generate information for your student loan applications, too.

5. Prepare for business-expense deduction

Are you using your car for business? If you didn't record your odometer reading on Jan. 1, then look at your reading now and estimate how many miles you've driven since the first day of the year. This is a good time to start tracking your business mileage for the current year.

It's also a good time to start trying to reconstruct last year's mileage, both personal and business, so you're ready for your appointment with your tax professional or your online service.

Remember, you'll need to split up your business mileage into two parts for last year. The mileage rate for business miles from Jan. 1 to June 30, 2008, was 50.5 cents per mile. From July 1 to Dec. 31, 2008, the rate was 58.5 cents per mile.

6. Avoid fighting over the kids

Each year, many divorced couples battle over who gets to take the dependency exemption for their children. Resolve this issue early. If you expect to get the exemption, have your ex sign a Form 8332 to release his or her claim on one or more of your children for 2008.

Though the tax code defines who qualifies to claim the child, it's often the case that whoever files first will get the exemption plus any related benefits. The parent who is properly entitled to the exemption but who files later usually has to fight to defend his rights. Using Form 8332 will prevent this problem.

7. New homeowners

Did you buy a home last year? If you bought it after April 8, you may be entitled to the first-time homebuyer credit worth up to $7,500. In fact, if you plan to buy a home before July 1, 2009, you'd be wise to delay filing your tax return until your purchase goes through, so you can claim the credit on your 2008 tax return. To qualify, neither you nor your spouse may have owned a home in the three years before the purchase date.

Resolve to save

This year, we all must manage our money expeditiously. One good way to increase cash flow is to become proficient in the tax benefits available to you. Keeping good records and paying attention to tax-law changes can net you hundreds or even thousands of dollars.