Making some strategic year-end tax planning before December 31 can save you considerable amount of money. It’s not yet too late for those smart tax moves. Here are a few:
Defer Income
• For those who are self- employed and can afford the delay in cashflow, defer sending out invoices or bills to clients until January.
• If you are planning to sell an investment on which you have a taxable gain, consider selling after the year end.
• Maximize contributions to deductible IRA and employer-sponsored 401(k) plans.
• If your company grants stock options, consider to wait until next year to exercise the option or to sell the stocks acquired by exercise of an option.
Accelerate Deductions
If you will owe taxes this year or if you expect to be in a higher tax bracket, it may be wise to pay these deductible expenses this year rather than waiting for next year’s due date.
• Mortgage payment due in January
• Real estate taxes due in first quarter of the following year
• Estimated state income taxes due in January
• Charitable contributions you expect to give early next year
Note: A written record (e.g. cancelled checks, receipt or letter) of charitable contribution is now required in 2007.
Tip: Consider giving appreciated property/stocks instead of cash. Generally, the market value of the property owned at least a year is deductible when donated to charity.
Other Year-End Moves
• If you want to invest in mutual funds, hold off until after the distribution (which is taxable income). Call the mutual fund and find out the record date of taxable distribution and invest after that date.
• Self-employed retirement plans should be set up before December 31. The contribution is not due until the filing of the tax return (including extension).
• Businesses who intend to purchase equipment this year can elect to expense the cost of new equipment up to $125,000 in 2007. The equipment should be put into use before the year ends.
Deferring this year’s income into the following year and accelerating deductions into the current year has always been a strategy for minimizing taxes. But be careful, not all taxpayers benefit from this tax moves if they are hit by the Alternative Minimum Tax (AMT).
For further information, please contact Joyce Ramos, CPA at 661-310-3455 or visit www.joyceramoscpa.com .