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