| While the average taxpayer will avoid thinking about | | | | concept applies for miscellaneous deductions.If you |
| income taxes until the approach of the April deadline | | | | expect to be able to itemize, and you are making |
| forces him to do so, once the ball drops on One Times | | | | quarterly state estimated tax payments, make the 4th |
| Square at midnight on December 31st and the New | | | | quarter payment in December, instead of waiting until |
| Year is rung in there is very little that can be done to | | | | the January 16, 2006 due date, so you will be able to |
| cut your tax bill.However, during the last two months of | | | | deduct the payment on your 2005 Schedule A.4) If |
| the year you can do a great deal to reduce your tax | | | | you do not have the cash available to pay for the |
| liability.Sit down with paper and pencil and list your | | | | deductible items you have scheduled as part of your |
| anticipated income for 2005 and all your allowable | | | | year-end plan, you can use a credit card to pay for |
| deductions to date. What you want to do is, using your | | | | the item and still get a 2005 deduction. Allowable |
| 2004 return as a guide, prepare a projected 2005 | | | | expenses charged to a credit card (VISA, Master |
| return. Once this is done you can decide what steps to | | | | Card, American Express, Discover) are deductible in |
| take to make sure you pay the absolute least amount | | | | the year charged, and not in the year that you actually |
| of federal and state income tax possible for 2005 and | | | | pay for the charge.5) The option to deduct state and |
| 2006. Tax information for 2005 (i.e. standard deduction | | | | local sales tax paid instead of state and local income |
| and personal exemption amounts, tax rates, etc.) is | | | | tax paid will expire on December 31, 2005. This option |
| available on the WHAT'S NEW FOR 2005 Page at | | | | will not be available for 2006. If you are planning to buy |
| are some year-end tips:1) Traditional year-end planning | | | | a new car (other than a qualifying energy-saving hybrid |
| calls for postponing the receipt of taxable income until | | | | - see tip #6), SUV, motorcycle, or other "big ticket" item |
| 2006 and accelerating allowable deductions to be | | | | in the near future you may want to do so before the |
| claimed in 2005, the idea being to reduce your 2005 | | | | end of the year to be able to deduct the sales tax.6) |
| taxable income to a minimum. This strategy will | | | | The Energy Tax Incentives Act of 2005 creates new |
| generally apply if you expect to be in the same tax | | | | tax credits for certain energy-saving autos, consumer |
| bracket for both 2005 and 2006, or if you will be in a | | | | products and home improvements beginning in 2006. |
| lower bracket in 2006.If, however, you anticipate a | | | | You may want to postpone any purchase of qualifying |
| substantial increase in taxable income in 2006, which | | | | energy-saving items until next year to be able to claim |
| will push you into a higher bracket, you should do the | | | | the credit.7) While postponing income and accelerating |
| reverse and accelerate the receipt of taxable income | | | | deductions may reduce your "regular" income tax for |
| to 2005 and postpone deductible expenses until 2006. | | | | 2005, these actions may backfire and end up costing |
| Income received in 2005 will be taxed at a lower rate, | | | | you if you fall victim to the dreaded Alternative |
| and deductions claimed in 2006 will yield a greater tax | | | | Minimum Tax (AMT). Why? Because taxes and |
| savings.Not sure what your 2006 income will be. Follow | | | | miscellaneous expenses are not deductible in |
| the rule of "when in doubt - defer" - go the traditional | | | | calculating AMT, and medical expenses are only |
| route and postpone income and accelerate | | | | deductible to the extent they exceed 10% of AGI. |
| expenses.2) It does not pay to itemize unless the total | | | | When preparing your projected 2005 return be sure to |
| of your allowable deductions exceeds the standard | | | | determine if you will be subject to AMT and plan your |
| deduction that applies to your filing status, plus any | | | | strategies accordingly.8) When preparing your |
| additions for age or blindness. If you decide to | | | | projected return you should review the performance |
| accelerate allowable deductions to claim them in 2005, | | | | of your investment portfolio for the year. Add up all |
| you can accelerate all you want, but it will be wasted | | | | your realized gains and losses from actual sales of |
| unless your total "itemizable" deductions exceed your | | | | stock, bonds and mutual fund shares for the first 10 |
| applicable standard deduction.Let us say you usually do | | | | months of the year, with separate net totals for |
| not have enough deductions to itemize. However, after | | | | short-term (held one year of less) and long-term (held |
| preparing your projected 2005 return you discover | | | | more than one year) activity. Gains and losses from |
| that, because of some special circumstance, you will | | | | inherited property are always considered long-term. |
| be able to itemize this year. During the last two months | | | | Include in the long-term calculation any "capital gain |
| of the year you should incur, and pay for, as many | | | | distributions" from mutual funds.Now do a similar |
| deductible expenses as possible.If, on the other hand, | | | | calculation for unrealized "paper" gains and losses on |
| your projected return indicates that you do not have | | | | the investments you still hold. You may want to sell |
| anywhere near enough deductions to be able to | | | | some of your investments before the end of the year |
| itemize, postpone making any deductible payments until | | | | at a loss to wipe out year-to-date gains, or at a profit |
| 2006. Making these payments in 2005 would not | | | | to take advantage of year-to-date losses in excess of |
| produce any tax savings, while it is possible that by | | | | $3,000.00.There are no written in stone year-end tax |
| deferring them until next year you may be able to | | | | planning rules that apply to all taxpayers in all cases. |
| itemize in 2006.3) The timing of deductions is especially | | | | As with any other transaction, year-end strategies |
| important when it comes to medical expenses and | | | | must be evaluated in the context of the special facts |
| miscellaneous job-related and investment expenses. | | | | and circumstances of your individual situation. You may |
| You are allowed to deduct medical expenses only to | | | | want to review your year-end situation with your tax |
| the extent that they exceed 7 1/2% of your Adjusted | | | | professional.And remember - your first criteria for |
| Gross Income (AGI), and most miscellaneous | | | | evaluating any financial transaction you are considering |
| deductions are only deductible to the extent that the | | | | should always be economic. Taxes are second.Robert |
| total exceeds 2% of AGI.If you anticipate a 2005 AGI | | | | D Flach is a tax professional with 34 tax seasons of |
| of $70,000.00 you must exclude the first $5,250.00 of | | | | experience preparing 1040s for individuals in all walks |
| medical expenses - the first $5,250.00 is not deductible. | | | | of life. He writes THE WANDERING TAX PRO |
| If your medical expenses to date are close to or more | | | | weblog ( the NJ TAX PRACTICE BLOG ( and the |
| than %5,250.00, and you will be able to itemize, pay | | | | website which has a wealth of tax planning and |
| any outstanding medical bills and schedule, and pay for, | | | | preparation advice and information. He also writes and |
| check-ups, doctor visits and needed dental work in | | | | publishes THE FLACH REPORT, a quarterly tax |
| November and December. If medical payments to | | | | newsletter. For more info on THE FLACH REPORT |
| date are substantially less than $5,250.00, put off | | | | go to The above article is taken from postings to THE |
| paying any more medical bills until 2006. The same | | | | WANDERING TAX PRO. |