Tax Tip of the Week
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For the week of
September 18, 2000
Year-end tax planning now can save big bucks at tax filing time
If you want to pay the least income tax possible for the year
2000, you should do some tax planning now. You still have time before the end of the tax year to make some good
tax planning decisions. Once December 31st has passed, most of your tax planning opportunities have also passed.
Consider these tax-cutting possibilities:
- Review the tax deductions you'll have for 2000. If you're close to the cutoff point between itemizing or taking the
standard deduction, consider the advantage of bunching your deductible expenses every other year. You can then
alternate between itemizing one year and taking the standard deduction the next, saving tax dollars by doing so.
Bunching means accelerating or delaying payment of deductible items, such as property taxes, medical expenses, and gifts to charity, to have the bulk fall in the itemizing years. Be sure your planning in this area takes into account the limitation on itemized deductions for higher-income taxpayers.
- If you're trying to squeeze more deductions into 2000
but you're short of cash, consider using your
credit card to pay business expenses, medical expenses, and miscellaneous itemized deductions before December 31st.
The IRS considers the items paid for when your credit card is charged, regardless of when you pay the credit card
company.
- Maximize dependency deductions. If you are helping to support an elderly parent, your college-age
child, or others, know the requirements that will give you a dependency exemption in 2000. Don't let poor planning
or paying for the wrong expenses cost you a tax-cutting dependency exemption.
Be aware that you cannot claim an exemption for a child 24 years or older who is a full-time student unless that child's income for 2000 is less than $2,800. Also be aware that dependency exemptions are phased out for higher-income taxpayers.
- Don't forget the magic of donating appreciated securities
to charities. You get to deduct the full market
value of your stocks or mutual funds, and also escape tax on your capital gain.
- Check income limits for various tax breaks. Deferring income this year may have the added benefit of qualifying you for other income-sensitive tax breaks - for example, the child credit, education credits, and the student loan interest deduction. However, planning is important, since some of these benefits can trigger the alternative minimum tax.
Remember, doing your tax-planning homework now can mean getting an A next April 15. Call if you would like help
in identifying and implementing the strategies best suited to your situation.
Click here to view previous tax tips.
"Tax Tips" are published weekly to
provide useful tax information. Return to this site every week for helpful tax-cutting suggestions, tax reminders,
and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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