By Eileen AJ Connelly, AP Personal Finance
NEW YORK (AP) — It may seem an odd time of year to think about your taxes. But taking some steps before Dec. 31 can help minimize the amount you'll owe or maximize your refund.
The tax code has a few new items this year including the well-publicized first time homebuyer's credit and a sales tax credit for new car buyers. There's also time to use more traditional strategies for maximizing deductions and minimizing income to lower your tax bill next April.
Here are a few tax-smart moves you can make:
1. Check your withholding.
The "Making Work Pay" credit included in the stimulus bill last spring put a little more money in your paycheck but it may also drive up your tax bill. Designed to get money flowing into the economy, this credit reduced the amount of tax withheld from paychecks.
But if you are a high-income earner, you typically owe taxes or you usually get just a small refund, you should check to make sure you're having enough tax withheld while there's still time to adjust it if necessary.The $400 credit ($800 for married people filing joint returns) starts phasing out for people who earn $75,000 ($150,000 for joint filers.) For those taxpayers, along with people who ordinarily owe taxes, the boost could translate into a higher tax bill, so it's worth doing some quick calculations to see if you should adjust withholding for the rest of the year. There's a calculator that will help you figure out if you need to adjust withholding on the IRS Web site. You'll need a recent pay stub and your last tax return to do the calculation.
Workers must pay at least 90% of their required withholding before the end of the year to avoid paying a penalty.
Withholding adjustments can also help those who pay estimated tax avoid underpayment penalties. It's better to spread out tax payments by withholding a portion of each paycheck than by trying to make a big lump sum payment for the fourth quarter, said Harris Abrams, senior tax analyst for Thomson Reuters. Making a big fourth-quarter payment may not shield you from an underpayment penalty, he noted.