How can I reduce taxes on a particularly profitable 2008?

My wife and I made much more money than usual this year, and we don't expect it will happen again anytime soon. We'd like to use this extra disposable income to make wise investments that plan for our future goals, and also reduce our taxes for 2008. I'd like your advice. Here are the details:

We don't own a home and don't have kids yet. Our main savings goals are for a down payment and for kids, and this extra money should serve that purpose. We expect both to occur in the next 1-2 years. We have a rainy-day fund already.

We don't qualify for Roth IRA, or for a deductible contribution to a traditional IRA. I've maxed out my 401k and she doesn't have one at her employer.

Anyone see any good options for reducing our taxes? Thanks for your help.

HSA?
you need to provide detail to get any advice of substance

Hi jlm. I did provide details. You didn't. Tell me what other details you'd like and I'd be glad to provide them.

I believe I'm not eligible for an HSA because I am not part of a high-deductible health plan. I do contribute to an FSA and don't have the option to increase the contribution amount until next year, unfortunately.

Do you have any self-employment income?

None, we're both employees.

One thought occurred to me -- is a 529 plan possible, and would there be any benefit?

From my understanding, you don't need a child to open one. And you'd only get to take deductions against state taxes. I live in CA, which has high state tax, so there would be a small benefit there. But I plan to itemize, so reducing my state taxes would effectively increase my fed taxes a bit as well.

I'd prefer to put money somewhere where it can be used for a home purchase, or more immediate expenses for dependents, rather than a 529, since our home and kids take priority over their college education at this point in time.

I also wonder if buying a home in 2008 would yield any benefit. We would be first-time homebuyers, and ineligible for the first-time homebuyer's credit this year, but possibly eligible for it in 2009. This seems like a disadvantage. But perhaps we'd get some tax deduction for paying off the points on a loan, or something along those lines?

Mike_Brie,

Points can be deducted as part of the mortgage interest on Schedule A Itmeized Deductions. This late in the tax year, your points are likely to be larger than you mortgage interest. You need to have all of your itemized deductions to be greater than your standard deduction ($10,900 MFJ) before it would be worth while.

You could make a Huge contribution to your Church or some charity or food bank.

Contribute a big chunk to the 529 plan for the state tax deduction. Name you or your spouse as the beneficiary and then when you have children (goats have kids) you can change the beneficiary to the child.

Haha, thanks Clyde. I'm going to look into the 529, although the overall tax benefit seems very small (I'm definitely itemizing), and it doesn't exactly meet out near-term financial goals (buy a house and raise some young goats) :)

We've upped our charitable contributions, but maybe we should consider making next year's contributions now.