Slash Your Tax Bill

New rules and a new President have changed the tax game. Use these strategies to save on your 2008 bill - and reap even bigger savings in the years to come.

1. 2008 Return: Profit From Your Pain (Part 1)

You may blanch at the beating your portfolio has taken lately. But the IRS gives the situation a positive spin. The losses from stocks, bonds or mutual funds sold in 2008 can offset gains elsewhere in your portfolio. No gains? In that case, use the losses to write off up to $3,000 in ordinary income on your return. That will lower your adjusted gross income, cut the amount you owe and help you qualify for more tax credits and deductions. If your losses exceed $3,000, you can carry them forward to future returns.

2. 2008 Return: Snag New Credits

Last year Congress introduced some brand-new tax breaks. Here are the three most likely to reward you this year.

3. 2008 Return: Take Advantage of Extra Breaks

As part of last fall's economic stimulus bill, Congress granted a stay of execution (through 2009) to some popular deductions that were due to expire for the 2008 tax year.

Extended:

The State Sales Tax Deduction
You choose: Either take this deduction or write off your state income tax on your federal return. The decision is obvious in places like Florida, New Hampshire and Texas, which don't have state income tax.

College Tuition Deduction
You can deduct up to $4,000 of your dependent kids' tuition bills and enrollment fees. Joint filers with modified adjusted gross income up to $160,000 are eligible to take some deduction.

4. 2008 return: Fund Your Retirement

You have until April 15 to send the check for a 2008 IRA, and you can sock $5,000 away, up from $4,000 last year. No matter what your household income, your traditional IRA contribution is deductible if you don't have access to a retirement plan at work. If you do have a 401(k) or 403(b), you still should be able to write off your contribution if your modified adjusted gross income is $85,000 or less.

5. 2008 return: Profit From Your Pain (Part 2)

If you were one of more than three million people who lost a job last year, don't forget that you can write off the cost of job hunting (see the quiz). And you may find that you qualify for some additional tax benefits:

A Bigger Refund
If you were laid off in July from a job where you made $100,000, you would have been taxed at the 25% rate, but your 2008 income will likely fall into the 15% bracket (bear in mind, however, that severance pay and unemployment benefits are also taxed).

Deduction for Medical Expenses
The threshold of 7.5% of adjusted gross income doesn't look so high if you're paying out of pocket for health insurance. In 2008, the average monthly premium alone for a family plan: $1,057, the Kaiser Family Foundation reports.

A Stimulus Check
The checks mailed last year were based on 2007 returns. If you lost your job in 2008, you could now qualify for a rebate check (or a bigger one). Use the calculator at irs.gov to determine how much you are eligible to receive, then claim the credit on your 1040.

6. 2009 and Beyond: Harvest Stock Losses

Even if you sold some losers last year, there's no reason not to do so again, since you can carry losses forward indefinitely to future years (and if you later decide that the stock or fund has good long-term prospects, you can buy it back after 30 days and still claim the loss). Plus, a few years from now you might be glad to have some losses to claim: During his campaign, President Obama proposed raising the maximum long-term capital-gains rate to 20%, up from 15% today. The hike isn't likely to happen in 2009, but there's a good chance it will by 2011 - when, under current law, the rate is scheduled to rise to 20% anyway.

7. 2009 and Beyond: Don't Tap Retirement Accounts

Normally, the year you turn 70 1/2, you must make the minimum IRS-required withdrawals from your traditional IRA and 401(k). (See IRS Publication 590 for details on how much you need to take.) But for this year only, the required minimum distributions for these accounts has been waived. If you can afford to defer your withdrawals, you'll give the account a chance to rebound while reducing your taxable income, says James Lange, a C.P.A. and author of Retire Secure!: Pay Taxes Later.

8. 2009 and Beyond: Maximize Tax Breaks

Last year, Congress re-upped some popular tax credits that expired or were set to expire. Want a greener home? Installing new insulation or buying eco-friendly appliances will get you up to a $500 credit. Invest in bigger items like solar panels and efficient heating pumps, and you get as much as $2,000 back from Uncle Sam. Some hybrid vehicles purchased in 2009 also qualify for a credit (check irs.gov for the manufacturers). And remember, the state sales tax deduction and college tuition deduction were extended through 2009. So start saving your receipts.

9. 2009 and Beyond: Stay Vigilant

Come April 15, all you want to do is bury those tax files and forget about them for another year. But keeping an ear out for upcoming changes could pay off. There's the possibility of an income tax credit, which would reduce paycheck withholdings by as much as $500 and $1,000 for singles and couples who meet the income requirement. Also under consideration: a provision that would allow taxpayers to take up to a $2,500 tuition credit (in lieu of the current deduction for college tuition). Finally, there may be changes to the home buyer credit: it could be increased to $15,000, expanded to all buyers, and the repayment requirement may be waived.