|
Idea # 1: Pay Final Quarter State Estimated
Tax Payments Prior to December 31st:
If you are required to make quarterly estimated tax payments, make sure
to pay your fourth quarter state estimate prior to December 31st. By doing
this, you accelerate the deduction into the current year, rather than
waiting a year for the deduction of this payment. Make sure not to pay
the fourth quarter federal estimate early, as you get no tax benefit for
doing so (it's due on January 15th, and federal income taxes are not deductible).
Idea # 2: Accelerate Mortgage Interest Expense
on Mortgage Loans:
If possible, make your January 2006 mortgage payment during December 2005,
prior to December 31. By so doing, you will accelerate one month's worth
of interest expense into 2005 rather than waiting until 2006 for the deduction
for this amount. This also works if you own rental properties, therefore
you can increase the expenses on your rental properties and thus decrease
rental income.
Idea # 3: Convert Non-Deductible Interest into
Deductible Interest:
Interest paid on credit card debt or an automobile loan is not currently
tax deductible. Should you have any of these types of obligations, you
may want to consider re-financing them with a home equity loan or a home
equity line of credit in order to deduct the interest paid. Of course,
the rate of the home equity loan should be compared to the rate paid on
the personal loans to ensure that an after-tax saving would result after
refinancing. Call us if you think this step may be worth pursuing or if
you need assistance with the calculation.
Idea # 4: Donate Appreciated Assets to Charity,
Not Cash:
An extremely effective tax reduction strategy is to give assets that have
appreciated in value, primarily stocks or mutual funds, directly to the
charity of your choice. By so doing, you will get a deduction for the
fair market value of the asset and will avoid having to pay capital gains
tax on the sale. This strategy works best for assets that you plan to
sell anyway and would then have to pay tax on the capital gain.
Idea # 5: Donate Non-Cash Items to Goodwill
or Other Charities:
You may have clothing, electronics or other personal items that you may
no longer want or need. By donating these items to an organization such
as Goodwill or the Salvation Army, you will be able to take a tax deduction
equal to the thrift shop value of these items. For contributions over
$250 you will need both a receipt from the charity as well as a list and
description of the items donated. To figure out what the value of the
items you donate is, use the value sheet on the back of your goodwill
receipt, or use values for what you would sell the items at a garage sell.
Idea #6: "Bunch" Miscellaneous Itemized
Deductions for Maximum Deductions:
Miscellaneous itemized deductions are subject to a 2% of adjusted gross
income (AGI) "haircut". So, to get any tax benefit from these
expenses you first must be able to itemize deductions, then the amount
of the miscellaneous deductions must be greater than 2% of AGI before
you even begin to receive any tax benefit. The trick is to identify as
many of these deductions that are applicable to you situation and attempt
to "bunch" them into a single year by deferring and/or pre-paying
them where possible. Here are some of the major categories that are deductible:
Unreimbursed Employee Business Expenses:
Business gifts (up to $25 per recipient), business mileage to temporary
work locations, professional dues and fees, professional education, business
phone calls, business meals, business travel, business postage, business
office supplies, business shipping, etc. Dry cleaning expenses are only
deductible when incurred during or after the return from a business trip.
Investing Expenses:
Magazine and newspaper subscriptions, investment web site fees, seminars,
books and tapes, worthless securities, depreciation on home computer to
extent used for investment management, safe deposit box rental, investment
management fees and IRA fees if paid with non-IRA funds.
Job Search Expenses:
Resume preparation, phone calls, travel for interviews, resume paper and
envelopes, etc.
Home Office Deduction:
For an employee, the home office deduction can only be claimed if it is
the only office available, and the office is used for the convenience
of the employer. In order to take this deduction, the square footage of
the home office and the square footage of the entire home must be calculated.
Expenses that can be deducted are the home office portion of mortgage
interest, property taxes, utilities, repairs and depreciation.
Idea # 1: Avoid Penalties on Withholdings or
Estimated Tax Payments:
Make sure to avoid penalties for underpayment of tax by having the appropriate
amount of tax paid in prior to the end of the year. In general for 2005,
to be safe from penalty, you need to have at least 100% of your prior
year tax liability or 90% of your current year tax liability paid in prior
to year-end. For high income tax payers (AGI over $150,000) the federal
tax requirement is 112% of prior year tax liability. Make sure to pay
your fourth quarter Oklahoma estimated tax payment prior to December 31.
By doing this, you accelerate the deduction by moving it into the current
year, rather than waiting a year for the deduction on this amount.
Idea # 2: Don't Give the IRS an Interest-Free
Loan:
If you find that you are receiving large refunds every year, you may want
to consider reducing your withholdings. You can do this very easily by
filling out a new W-4 Form with your company's payroll department. However,
over the years that we have prepared tax returns we have found that most
people would much rather know for sure that they will be getting money
back at tax time than to owe money unexpectedly. So, take this idea with
a grain of salt.
Idea #1: Consider Dividend Paying Securities:
Under the recent tax law changes, dividends receive a preferential tax
rate as compared to interest income. However, there are several conditions
that must be met in order to receive this treatment such as holding period
and type of security.
Idea # 2: Sell Your "Dogs" to Generate
Tax Losses:
A basic tax reduction strategy is to time losses to offset capital gains.
If you have large capital gains to offset, it might make sense to sell
some of your poorer performers, which you no longer wish to own. Capital
losses are fully deductible against capital gains, but any capital losses
in excess of capital gains can only offset up to $3,000 ($1,500 if single)
of ordinary income, Amounts in excess of $3,000 ($1,500 if single) are
then carried forward indefinitely.
Idea # 3: Carefully Evaluate Capital Gain Transactions:
The new 2003 tax law has given even more favorable treatment to long-term
capital gains. However, you need to carefully consider the holding period
of the applicable investments in order to ensure that you are able to
obtain the favorable long-term rate. Please call us if you have any questions
on the required holding periods for long-term capital gain treatment.
Idea #4: Retirement Plan Option Explosion:
The number of retirement plan alternatives has continued to expand. There
are so many options available these days that retirement planning is a
sub-specialty in and of itself. The key point here is that everyone should
be contributing to a tax-deferred retirement plan of some sort. Focus
on plans that offer an employer match first. After contributions to these
types of plans have been maxed out, additional options such as a traditional
IRA can be considered. The Roth IRA is another plan that should be considered
as well. Although the Roth IRA offers no up front deduction, amounts contributed
grow tax-deferred and eventual distributions are tax-free.
|
