By Robert Steere, Toolkit Staff Writer

It's that time of year again. We're in December, the final month of the year, nearing the end of 2009. And as the calendar year ends, so does the tax year for most of us. In most cases, if we are going to do anything to reduce the 2009 tax bill, we need to do it by December 31. Following are seven different ways that you can save on your tax bill. Sadly, most of them involve spending money. But, if you are intending to spend the money relatively soon anyway, then doing it in December will allow you to take immediate advantage of it for tax purposes.

Deduction for Sales Tax Paid on Vehicle Purchases. If you buy a new vehicle (or two or three) before the end of 2009, you may be able to deduct the state and local sales tax you pay on the purchase price. The deduction is limited to the amount of tax imposed on a vehicle's purchase price up to $49,500. In some states, this can amount to a deduction of more than $4,000. There is no limit to the number of vehicles to which the deduction applies. The vehicles can be cars, trucks, motorcycles or motor homes--just about anything that is primarily used for driving on public roadways. Be aware that this tax break is either now or never--it expires at the end of 2009.

Tax Credits for Electric Vehicle Purchases. In addition to the sales tax deduction described above, you may be able to claim a substantial tax credit (several thousand dollars) if you "go green" with your new vehicle purchase. An alternative motor vehicle credit of up to $4,000 may be available if you purchase a qualified hybrid vehicle, advanced lean-burn technology vehicle, alternative fuel vehicle or fuel-cell vehicle, or if you purchase and install a conversion kit to turn a traditional, gas-powered vehicle into a qualifying vehicle. The amount of the credit depends upon the make and model of the vehicle purchased.

You may be able to take a "plug-in electric drive motor vehicle" credit ranging from $2,500 up to $7,500 on a new qualifying low-speed vehicle, passenger vehicle or light truck. The amount of the credit is based on the capacity of the vehicle's battery. Reports have indicated that, in some cases, the credit can almost cover the cost of the vehicle. In the alternative, the "plug-in electric vehicle credit"--a credit of up to $2,500--may be available if you purchase a plug-in electric vehicle that is either a low-speed vehicle or a vehicle with only two or three wheels.

These credits will still be available in 2010, but if you want to claim the credit on your 2009 tax return, the purchase or conversion must be completed, and the vehicle placed in service, in 2009.

Tax Credits for Energy-Efficient Home Improvements. If you make energy-efficient home improvements before the end of the year, you may be eligible for two different tax credits. First, if you make improvements such as adding insulation, installing thermal windows or installing high-efficiency heating/cooling systems, you may be able to take up to $1,500 as a "nonbusiness energy property" credit. If you purchase and install qualifying solar electric property, solar water heating property, small wind energy property, geothermal heat pump property or fuel cell property, you may claim a "residential energy efficient property" credit equal to 30 percent of your costs. Only the fuel cell property is limited in amount.

These credits will also be available for the 2010 tax year, but to claim the credit for 2009, installation must be completed in 2009.

First-time Homebuyer Credit. If you can qualify as a first-time homebuyer (which recently got much easier to do), then you may be able to claim up to an $8,000 tax credit on the purchase of a new home. And you won't even have to complete the transaction by the end of 2009 to claim the credit on your 2009 tax return. If you enter into a purchase contract by April 30, 2010, and close on the purchase by June 30, 2010, you can claim a tax credit of 10 percent of the purchase price (up to $8,000) on your 2009 tax return. The credit is available to those who have not owned a home for the three years leading up to the purchase. It is also available at a reduced level ($6,500) to those who have lived in their current home for at least five consecutive years during the previous eight years. There are some income limitations, though. The tax credit phases out between income levels of $125,000 and $145,000 for individuals and $225,000 and $245,000 for joint filers.

This credit has already been revived twice during the last year, but don't expect to have this opportunity available again after April 30, 2010.

Deduction and Credit for Retirement Contributions. You can deduct as much as $5,000 ($6,000 if you are age 50 or above) from your 2009 tax bill for contributions to an individual retirement account (IRA). Or, if you participate in a 401(k) or other qualified employer-provided retirement plan, an elective deferral of as much as $16,500 ($22,000 if you are age 50 or above) may be excludable from your taxable income. Check your eligibility for these deductions before taking action. In addition, if you fit within the income limitations, you may qualify for up to a $1,000 "retirement savings contributions" tax credit.

As with the homebuyer credit, you don't have to act before year end to take advantage of the deduction and credit. If you make your IRA contribution before April 15, 2010, you will be able to take both the deduction and the credit (if eligible) on your 2009 tax return.

Education Credits and Deductions. If you are paying for tuition and related expenses for higher education, you may be eligible for the American Opportunity credit (formerly the Hope credit), the lifetime learning credit, or the tuition and fees deduction. If you have not already reached the maximum expenditures eligible for these tax breaks in 2009, and you have a choice of making tuition and fee payments for winter term in December instead of January, you may want to make the payment in December to get full benefit on your 2009 return. The American Opportunity credit can be as much as $2,500 (dollar-for-dollar on the first $2,000 of expenditures, and up to $500 on the next $2,000 of expenditures).

Charitable Contributions. If you itemize your deductions, then acting on your charitable spirit during the holiday season is an excellent way to reduce your 2009 taxable income. Make your charitable contributions before the end of the year, make sure you receive the proper documentation of your contributions from the organizations benefiting from your generosity, and you will be able to deduct the amount you contribute as an itemized deduction on your 2009 tax return.

These are just a handful of tax breaks that can provide big savings for 2009 if you are prepared to take action relatively soon. Some, but not all, require action by December 31. If you have already taken some of these steps, congratulations. From a tax standpoint, you have done yourself a great service. If not, it is time to complete your year-end tax planning and take the steps that can help to minimize your 2009 tax liability.

Related items:

Posted December 11, 2009.