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Year-end 1999
Tax Planning
Accelerating
deductions and deferring income at year-end is generally a good
tax planning strategy. As long as you anticipate that your tax bracket
in 2000 will be the same or lower than 1999, income deferral could
add up to some serious tax savings. Beware though, if you are likely
to be subject to the alternative minimum tax (AMT), it may pay to
accelerate the receipt of taxable income and delay paying deductible
expenses.
Accelerate
Deductions
"Bunch" your
expenses. If it doesn't look like you will even get close to exceeding
the threshold for medical and or miscellaneous deductions, hold
off paying any of these types of expenses until the following
year (to the extent possible), when they might have some tax-saving
power. On the other hand, if you are close to or already over
the limit, see what you can do to increase the deduction. This
can be achieved by paying any outstanding medical bills, buying
necessities such as glasses or contact lenses and handling any
elective medical and dental work before year-end. Also, for miscellaneous
itemized deductions, pay professional dues and renew subscriptions
to investment magazines by December 31. Remember that charges
to credit cards are deemed paid in the year of the charge regardless
of when you pay off the debt.
Pay state
and property tax bills early. Fourth quarter estimated state &
local tax payments mailed by December 31 may be deducted in the
current year. Similarly, instead of paying just the first installment
of your property tax bill, pay both installments by the end of
the year.
Make an extra
mortgage payment. You can increase your home-mortgage interest
deduction by making your December payment before year-end, even
if it's not due until January. Check your Form 1098 from your
lender carefully though, as this additional interest payment may
not be included on this form. In order to head off any nasty letters
form the IRS, remember to include a note with your tax return
explaining the difference between what you are reporting and what
appears on Form 1098.
If you are
in the process of buying a home, you may want to accelerate escrow
to close by December 31 if you are paying "points" on your new
loan. Points (prepaid interest) paid on a mortgage to buy your
principal residence are fully deductible in the year paid.
Be charitable.
Cleaning out your closets and the garage during the holidays can
result in substantial tax savings in the form of charitable contributions.
In addition, contributions of appreciated property (i.e. stock)
will result in a deduction in the amount of the current value
of the stock rather than what you originally paid for it. This
provides an additional benefit of allowing you to avoid paying
capital gains on any built up profit.
If you have
an investment with a loss, consider selling before year-end. You
can get up to $3,000.00 capital loss deduction.
Lower
Your Estate Value
Give the
gift of cash. Although you don't get an income tax deduction for
any gifts of cash you make that are not to qualified charitable
organizations, you and your spouse can each give away as much
as $10,000 a year to children without incurring a gift tax on
those amounts. But make sure that the recipient cashes the check
as soon as they get it to be considered a gift for 1999.
Defer
Income
Defer year-end
bonuses. While wage earners usually don't have much control over
how they earn their income, year-end bonuses may give them something
to work with. If you have the choice, ask your employer to pay
you your Christmas bonus in January 2000. If it is standard practice
for your company to pay year-end bonuses the following year, the
income will be taxed in the year you get the check.
Delay billings.
If you are in a position to be able to defer billings (i.e. you
are self-employed or do free-lance or consulting work in addition
to a job) and your cash flow situation is steady, you may be able
to benefit from deferring income. Delay sending invoices until
late December and you can bet that you won't receive payment until
2000.
Reconsider
exercising stock options. If you work for a company that grants
options (non-qualified or incentive), it may be wise to wait until
January 1 to exercise and sell your stock. Generally, "non-qualified"
options have an income tax impact, and "incentive stock options"
have a capital gains and alternative minimum tax impact.
Additional
Considerations
Contribute
to your regular IRA. If you haven't created a new Roth this year
(conversions don't count) and you don't participate in an employer-sponsored
401-k plan, you can contribute up to $2,000 a year to a traditional
IRA and deduct the contribution from your income. If you do participate
in a 401-k plan, income restrictions apply.
Set up retirement
plans before year-end. Certain corporate retirement plans, such
as profit sharing and money-purchase pension plans, must be established,
although not funded, before year-end. The funding must be completed
when you file your taxes.
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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