Top Ten Year End Tax Planning Tips
(December 03, 2007)
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Plan on making any annual exclusion gifts this year? If so, be sure to do it before December 31st. The annual exclusion amount is $12,000 for 2007. Keep in mind that tuition payments made directly to the school and medical expenses paid directly to the provider are not considered gifts for annual exclusion purposes.
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If your business is showing a profit for this year, it is time to start thinking about possible deductions. Consider replacing older computers or other equipment by year end, as you may be eligible to take advantage of the Section 179 expense deduction. This deduction allows you to expense up to $125,000 of qualifying property that is used more than 50% in the active conduct of your trade or business.
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If the alternative minimum tax is not a problem for you, consider making your state and local estimated tax payments before year end in order to get the deduction on Schedule A.
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Closely review your withholdings and any estimated tax payments that you have paid in to date. Make sure that you are not in an underpayment penalty situation by paying in at least 90% of your current year’s tax or 100% of your prior year’s tax. Take note that if your adjusted gross income exceeds $150,000, and you are basing your withholdings or estimates on prior year’s tax, you will need to have paid in at least 110% of your prior year’s tax.
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If you are self-employed and are not participating in a retirement plan, consider setting up a retirement plan. Since some retirement vehicles need to be established before year end, now is the time to research the different alternatives. Contributions to some plans may even be deductible and any earnings would be tax deferred.
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Review your realized capital gains and losses. If your capital gains are currently in excess of your losses, re-examine your portfolio to see if it makes sense, for investment and tax purposes, to sell any stocks that may generate a loss. These transactions are time sensitive for reporting purposes, so you will want to make sure that the trade date of the transaction is in 2007.
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In order to get the deduction for any charitable contributions, be sure that the check is mailed by December 31st. If making the contribution by credit card, the date of the transaction will determine the year of the contribution, not the date the credit card balance is paid.
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Set aside time this year to review your will and other important documents. A lot can happen in a year that can change how you intend your assets to be distributed upon your death. Also, changes in federal and state estate taxes warrant an annual review.
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If you are self-employed start accumulating your medical and dental insurance premium information. 100% of these premiums can be taken as an above the line deduction. Also, don’t forget about long term care insurance premiums. A portion of these premiums can be deducted as well.
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Make contributions to a Section 529 plan for your child’s college education. The earnings on these contributions will be tax-free as long as the funds are ultimately used for education. Also, in some states, such as Pennsylvania, a portion will be deductible from your taxable income.
