Written by:
Frank Sisco, 30 Mill Road, New Rochelle, NY 10804
Home office - 914.740.4422, Cell - 914.740.4422; Email – ideasmoney@aol.com
www.LifeAndMoney.com
Copyright 2007 Frank Sisco
Life and Money - "Year-End Tax Strategies"
By Frank Sisco, CPA, PFS
(Word count = 734 word count including "Across the Media" section (21 words) plus 61 words for About the Author)
As the end of the year approaches, there are various steps you can take to reduce your income taxes. If you wait until after December 31st, it can be too late, and so the time to act is now. Many of the tried-and-true strategies apply this year as well, such as the following:
(1). Prepay personal deductible expenses in 2007 rather than waiting until 2008. Personal deductions include mortgage interest, real estate taxes, and charitable deductions, and state income taxes (via estimated tax voucher for self-employed individuals). Non-cash charitable contributions give you an opportunity to clean out your closets, garage, shed, etc. of items that no longer have much value to you but may benefit others, and give you a sizeable deduction in the process. Check the internet for a host of organizations that accept donated vehicles.
(2). If you are a small business owner, there are several opportunities to decrease taxes. Deferring income until 2008 can save handsomely. This can be simply done if you are a cash-basis taxpayer by just postponing the collection of your accounts receivable, often done by postponing sending out sales invoices. Accelerating expenses into 2007 can be effective if you have sufficient cash reserves. Let's say you were planning to purchase certain equipment that was used in your business or income-producing activity. The Internal Revenue Code Section 179 allows an immediate write-off of $108,000 rather than depreciating it over its useful life. (For vehicles, there are certain further limitations.) Also, it may be possible to negotiate with certain employees and independent contractors that your payments to them be reduced if paid now than as scheduled throughout 2008. You get the deduction now and they must pick up the income, but often you'll find some takers on this strategy.
(3). Contributions to retirement plans represent a way to reduce taxes now. If you haven't funded your 401ks and IRAs to their allowable limits and you have the ready cash, then do so to cut your taxes. If you are self-employed, consider changing to a plan type that will give you a greater allowable deduction (sometimes but not always this can be done between 12/31 and the tax due date of April 15th). Not only will you save taxes, but also you may make progress on saving for your future retirement.
(4). Investment securities should be assessed in early December with an eye toward selling clunkers at a loss that can be used to offset capital gains, and up to $3,000 of ordinary income. Tax savings should not rule over good investment sense, but often the two complement each other.
(5). Closing down inactive or unprofitable businesses. Often I've seen people continue business ventures which no longer work or make money. Each year they spend money to get the business tax returns prepared and postpone the inevitable decision to liquidate and close the business. Sometimes, there are recorded assets that no longer have value and, by closing the books, a net write-off can be used against the person's other income.
(6). For people undergoing hard times, there can be special cases of smart tax planning, often different from the usual advice of deferring income and accelerating deductions. For example, let's say your Schedule C business has had a significant loss thus far in 2007. Before the year is out, you should consider withdrawing funds from your retirement plans (or convert to Roth IRAs) so that you can free those funds from future taxes. Another example concerns high medical expenses. Let's suppose your elderly husband has had a substantial amount of unreimbursed medical expenses in 2007, and he is also thinking about selling some of his investments that have significant gains. It may make sense for him to make the sales in 2007 so he can use up the high medical expense deduction that may ordinarily go unused if he waits until 2008 to sell.
The holiday season is busy with gift-buying and seeing friends and family, and too often we don't have the extra time to take advantage of year-end tax strategies that can save us a lot of money. If you get too pressed for time, consider enrolling the help of others or focus on the strategies that have the biggest payback for the time involved.
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For more information on tax tips for tough times, see the article at the following link:
http://www.lifeandmoney.com/1newlifeandmoneyfiles030707/articles/Article_FinancialPlanningMP_TaxTipsForToughTimes.htm
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About the author:
Frank Sisco is a CPA and Personal Financial Specialist and writes on topics related to life and money. You can contact Frank by email at ideasmoney@aol.com or by phone at 914.589.1013 in order to express your opinion about this article or to obtain copies of prior articles. He resides in New Rochelle, NY with his wife and daughter.
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