 | Christopher W Merchant
is a C.P.A. with over 30 years experience in all aspects of tax preparation, accounting and business valuations. Chris is a member of The American Institute of Certified Public Accountants and the National Association of Certified Valuation Analysts. In addition to his private practice, he opened Liberty Tax Service with his sister Kelly Carpenter in January 2001. Liberty Tax Service is located in Towne West Square and offers high quality tax returns as well as refund anticipation loans in which clients can receive their refunds in 24 to 48 hours. For more information, you may contact Liberty Tax Service by phone at (316) 219-4829 or Chris at (316) 744-9181. Chris graduated from Wichita State University in 1970 and lives in Wichita with his wife Debra and children Andrew and Jamie. |
Taxes & Accounting
2002-12-01 09:12:00
What should one do now... before the end
ANSWER: Taxpayers who take the time to explore strategic year-end tactics to help reduce their income taxes both next spring and in future years should be applauded. There are some things that taxpayers can do that might save them tax dollars. Now is the time to project what your tax situation will look like for the year. It is good financial management to know where you stand in relation to your income and deductions. This allows you to take advantage of opportunities for tax saving that require action before the end of December. For 2002, the following is what I recommend insofar as tax planning strategies that should be considered:1. Review your stock portfolio to determine if you should sell stocks to recognize capital losses to offset capital gains. Remember that you can use losses to offset gains plus $3,000 of ordinary income.2. Make it a habit at the end of each year to evaluate your overall retirement plan. If you can afford to do so, pump up your 401(K) deduction before your year-end bonus is paid. If you can't contribute to your IRA account now, then start budgeting for your 2002 contribution, which can be made until April 15, 2003.3. If you are self-employed, then start a retirement plan by December 31, 2002. You have until the time you file your tax return to make your contribution but only until year-end to adopt the plan.4. With interest rates low, now is the time to convert nondeductible credit card interest into deductible home equity interest by paying off personal debt with a home equity loan.5. If you itemize your deductions, then you need to clean out your closet and donate your old clothing and household items to a charitable organization. Be sure to keep a detailed list with the value of the items. If you have an unfulfilled charitable pledge, then consider donating appreciated stock instead of cash. If you have owned the securities for more than a year, you can deduct the full value of your gift and avoid paying taxes on the appreciation.6. Another year-end opportunity if you itemize your deductions is to accelerate deduction into this year. If you are going to owe state income taxes or have a January estimate due, then consider paying it this year. If it seems likely that you will be close to exceeding the 7.5% limit on medical expense, then you should consider accelerating elective treatment and paying for it before December 31st.7. For high net worth individuals, consider establishing a gift-giving program to utilize the $11,000 or $22,000 (if married) annual gift exclusion. The transfer of income producing assets to family members now will lower your taxes in future years as well as benefit your estate plan.8. If you are receiving Social Security Benefits then you should determine if any of those benefits are taxable. Depending on your other income and your filing status, benefits may be tax-free or up to 85 percent of the benefits may have to be included as income. For example, if you file as a married couple some percentage of the benefits is taxable if your total income plus one half of your net benefits exceed a base of $32,000. Therefore you would benefit by eliminating income in excess of the base amount. This might be done by, selling stocks at a loss to offset gains or, postponing distributions from IRA's. 9. Any year-end planning should be done with the dreaded alternative minimum tax (AMT) in mind. This tax covers more kinds of income and allows fewer deductions and credits than ordinary income tax. For example, one earlier idea was for taxpayers who pay state income taxes quarterly was to make the January payment by December 31st. That lets you claim the deduction for 2002 and earns you the tax savings a year ahead of time. But that can be disastrous if you face the AMT because deductions for state and local income taxes aren't allowed. Now is the time for you to figure out if you face an AMT problem and, if so, plan to minimize the consequences.Remember after you have done your planning be sure to check your estimated tax situation. The IRS charges a penalty if you haven't paid enough on your 2002 tax through withholding and estimated tax payments. As always if you are unsure of the tax consequences of any tax situation seek the advice of a tax professional.
