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Year-End Tax Planning
Now is the best
time of year to do tax planning, because we can now combine general
tax planning with year-end tax planning. A keen eye and a sharp
pencil are especially needed this year because many new-for-1998
tax breaks require careful consideration and planning to produce
the best tax results.
Here are
some money-saving ideas you may want to put in action before the
end of 1998:
Postpone
income until 1999 and accelerate deductions into 1998 to lower
your 1998 tax bill. Postponing tax generally is one of the main
goals of year-end tax planning. This year it's particularly relevant
because many new deductions, credits, and other tax breaks that
are first effective in 1998 are phased out over varying levels
of adjusted gross income (AGI). For example, those whose adjusted
gross income is in the $100,000 range who want to convert regular
IRAs to the new Roth IRAs need to be especially careful that their
AGI doesn't go over $100,000 in 1998. Only those with AGIs of
$100,000 or less are permitted to make the conversion. Income
that results from 1998 conversions of regular IRAs to Roth IRAs
can be spread over four years. Contributions to Roth IRAs are
made with after-tax dollars, but after a 5-year period that begins
with the year for which you make a contribution to any Roth IRA,
certain withdrawals are tax-free. So to start this 5-year period,
it's important that you make a Roth IRA contribution this year
(if you're able to under the rules), even if the contribution
is small.
Other new-for-1998
tax breaks that have AGI-based phaseouts include education tax
credits, the child tax credit, the student loan interest deduction,
and contributions to education IRAs. AGI phaseouts also continue
to apply to determine whether and to what extent an IRA contribution
is deductible by a person who is covered by a qualified plan.
However the rules are liberalized for 1998 to allow higher levels
of income before deductions are lost. Also, plan participation
by a spouse won't cause a nonparticipant to lose deductions in
many cases.
Make gifts
to family members to take advantage of the $10,000 gift tax exclusion.
That apples for each donee each year. (You get no carryover of
any unused exclusion - it's a "use it or lose it" benefit.)
Bunch expenses
into one year to maximize your itemized deductions.
Time capital
losses and capital gains to make the best use of the special rules
for these items. This tried and true strategy is made more complicated
this year by the new (mostly very favorable) tax rules that now
apply to capital gains.
There are
many non-tax factors that could influence your year-end planning.
These factors include a significant raise or bonus, a change in
jobs, changes in the amount of your business expenses or itemized
deductions, adoption or birth of a child, a death in the family,
or a change in your marital status.
By doing
year-end tax planning now, you can take maximum advantage of new
tax rules, as well as the differences in your own particular situation
in the two years.
These are
just a few of the possibilities. Schedule a time to do general
and year-end tax planning now and still leave enough time for
you to structure transactions to take place before the end of
the year.
Be sure to
consult with a tax advisor for proper planning and Implementation
of tax savings ideas to be sure they are right for you.
C.
David Pitzer, CPA, PC
118
Two Mile Pike
Goodlettsville, TN 37072
(615) 851-2727
Fax: (615) 851-8711
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