Take action before year-end to
lower your tax bill
(ARA) - This time of year it's
not the taxman we're waiting for, but rather a rotund guy dressed in red
and bearing gifts. Before you get swept up in holiday festivities, you
might want to turn your attention to a little end-of-year tax planning
that can reduce your taxable income. Think of it as a holiday gift to
yourself that you will open next April 15.
"We know income taxes aren't a priority this time of year," says Suzanne
Hunstad, a spokesperson for IHateFinancialPlanning.com. In fact, a poll of
the Web site's users revealed that 51 percent of respondents never think
about taxes until April. The site tailors its financial tools and topics
for procrastinators and others who resist making progress with their
personal finances.
"If we can get the word to taxpayers that they may be able to reduce the
amount they will owe Uncle Sam next spring by acting now, it may motivate
them to do a few smart things before the year ends," Hunstad adds.
What You Can Do At Work
One potential tax shelter is a retirement savings plan. Pre-tax dollars
are deposited in a 401(k) or 403(b) account at work. That reduces your
current taxable income while helping you build a nest egg for
retirement. Individual Retirement Accounts (IRAs) can accomplish the
same goal, but the annual contribution limits are much less.
Many employers offer flexible spending accounts which allow you to have
money deducted from your paycheck for dependent care costs and medical
expenses not covered by insurance (i.e., chiropractic care, prescription
co-pays, crutches). It's a great way to reduce your taxable income, but
plan carefully, because unused dollars must be forfeited at the end of
each year. If your employee benefits enrollment has already occurred,
you'll have to wait until next year to take advantage of this one.
For teachers, saving school supply receipts will come in handy at income
tax time. In 2002 and 2003, educators can deduct up to $250 of their
inevitable classroom purchases on their Form 1040. No itemizing
required. "It's not a huge amount, but every little bit helps,
especially on a teacher's salary," Hunstad says.
Some Simple Deductive Reasoning
The government designates a standard deduction, adjusted each year for
inflation, designed for taxpayers who don't care to itemize their
deductible expenses or may not have enough to qualify otherwise. The
standard deduction for individuals for the 2002 tax year is $4,700, and
for married, filing jointly it's $7,850. Check out these itemized
deductions to see if you exceed the standard amount.
State income taxes
Personal property taxes
Home mortgage interest
Business expenses
Qualified medical and dental expenses that exceed 7.5 percent of your
adjusted gross income (AGI).
What's more, you may be eligible for deductions you never knew existed,
but be aware that most of these only count if, when added together, they
equal 2 percent or more of your AGI. They include:
Interest on college loans
License tags for your car
Out-of-pocket expenses relating to charitable activities, including the
standard mileage deduction
Appreciation on property donated to charity
Accounting fees for tax preparation
Losses from casualty or theft
Commissions and closing costs on the sale of property
Costs associated with looking for a new job in your present occupation,
including fees for resume preparation and employment outplacement
agencies
Education expenses to the extent required by law or your employer, or
needed to maintain or improve your skills
Dues for labor unions
Protective clothing required at work
Subscriptions to professional journals
Worthless stock or securities (this may be a common deduction in 2002)
Pay Now, Save Later
It may be worth your while to try to pay some anticipated expenses for
2003 yet this year to increase your deductions:
Make your January mortgage payment in December, so the payment will be
included on this year's 1098
Give a year-end gift to your favorite charity
Prepay state and local taxes so you can deduct next year's taxes on this
year's return
Buy Low, Sell High
If you have investments, it's wise to examine their tax status before
year-end. Depending on the type of earnings your investments generate in
2002, if any, they may be subject to income taxes. Interest, dividends
and short-term capital gains (profits on assets held for less than a
year) are currently taxed as ordinary income. Long-term capital gains
are currently taxed at a somewhat lower rate, depending on the length of
ownership and your tax bracket. If you're in a situation where you have
realized capital gains, you may want to offset your tax bill by selling
enough of your losing stocks to eliminate the tax you owe. A financial
professional can help you with this decision.
Apply a few of these strategies and shape up your income tax situation
long before your tax forms arrive early next year.
IHateFinancialPlanning.com doesn't offer tax or legal advice, so you may
want to seek the advice of a tax professional or certified public
accountant to see which of these ideas may work in your particular
situation. For more information go to www.IHateFinancialPlanning.com.
Courtesy of ARA Content
EDITOR'S NOTE: IHateFinancialPlanning.com is a Web site that has helped
nearly 3 million people who have an aversion to planning make sense of
their personal finances through fun, friendly, easy-to-understand
content and financial planning tools. The Web site is affiliated with
ING's U.S. operations.
ING's U.S. operations (www.ing-usa.com) offer a comprehensive array of
products and services, including life insurance; fixed and variable
annuities; retirement plans; employee benefits; and mutual funds,
through a variety of distribution channels, including a large network of
independent financial professionals in the industry. ING U.S. Financial
Services is part of Amsterdam-based ING Groep N.V., one of the largest
integrated financial services organizations in the world.
Securities available through PrimeVest Financial Services, Inc., Member
NASD/SIPC and a member of ING. Carmichael Lynch Spong is not affiliated
with PrimeVest Financial Services, INC. and is not a member of ING.
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(ARA) - This time of year it's
not the taxman we're waiting for, but rather a rotund guy dressed in red
and bearing gifts. Before you get swept up in holiday festivities, you
might want to turn your attention to a little end-of-year tax planning
that can reduce your taxable income. Think of it as a holiday gift to
yourself that you will open next April 15. 
