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Managing Your Money : Strategies for Keeping Money From Tax Man : Many deductions have been eliminated, but you can pay less if you plan ahead.

TIMES STAFF WRITER

If a penny saved is a penny earned, a penny in taxes kept away from Uncle Sam is really just as good.

Changes to federal income tax laws over the last decade have left precious few ways to reduce the personal income tax bite, however. But diligent taxpayers can wrest a few extra dollars from the clutches of the Internal Revenue Service if they are careful record-keepers--and if they plan ahead.

Even before she makes up her Christmas list, for example, Alison R. Jefferson, a 32-year-old manager of music groups, begins preparing for the April 15 tax deadline by collecting household items to donate to charity, reviewing her computerized accounting program and organizing her deductible expenses for the year.

Tax experts say December presents one of the last opportunities to reduce your 1991 tax bill. It is also a good time to do some financial forecasting to minimize next year’s taxes. That may be particularly important for the more than 600,000 Californians who lost a job this year and face the tax consequences of receiving unemployment benefits or pension fund distributions as a result of their change in employment status.

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“You really need to plan ahead and determine your financial goals and needs,” says Ida Yarborough, a certified public accountant in Los Angeles who runs her own tax preparation firm.

The basic tax strategy recommended by most experts remains the same: Postpone whatever income you can until next year and accelerate possible tax deductions.

Those with annual incomes above $100,000 may face special situations that weigh against accelerating deductions. For others, accelerating is advisable--and a common method is prepaying mortgage payments and state and local taxes. Tax experts also suggest that you defer until January any employee bonuses or payments for outside services you expect to receive.

There is no tax rate reduction scheduled for 1992, but indexing of tax brackets and personal income exemptions for inflation in 1992 provide incentives for postponing income. For example, the standard deduction on a joint return will rise to an estimated $6,000 from $5,700 in 1991, and the 31% rate will apply to incomes over $86,500 on a joint return, up from $82,150 for 1991, according to the Research Institute of America. It prepares tax reference materials for accountants and other preparers.

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Those who lost their jobs in 1991 may have not have a chance to use such income ploys, but they will have to reckon with Uncle Sam on April 15 nonetheless. While unemployment benefits are not taxed under California law, they are federally taxable, according to Gregg Ritchie, a tax partner with Peat Marwick in Woodland Hills.

Those burdened with debt should beware too: This year, for the first time, no interest on charge cards, car loans and the like is deductible. Sales taxes, which have zoomed above 8% in some parts of California, aren’t deductible either.

Despite the elimination of most tax shelters and deductions over the past decade, the government has allowed employers to create a few ways for their employees to shelter more income from taxes.

If your company has a 401(k) tax deferred savings plan, you can contribute as much as $8,475 in annual gross income to the plan, reducing your taxable income and gaining several thousand dollars in tax savings each year.

Two similar ways of sheltering income--dependent care and medical salary reduction programs--have also become more widespread in recent years but aren’t as popular as 401(k) plans because they remain poorly understood, says Phil Holthouse, a tax partner at Parks, Palmer, Turner & Yemenidjian in Los Angeles.

Under the plans, employees can shelter some of their before-tax income to pay for dependent care and medical bills not covered by health insurance. The downside of the medical savings plan is that it requires you to make a determination this year of what your medical expenses might be in 1992. So if you tell your employer to shelter $1,000 of your income next year to pay for unreimbursed medical expenses that end up amounting to only $500 in 1992, you forfeit the other $500 of sheltered income.

Nevertheless, says Holthouse, “these plans are virtually a free lunch, so take advantage of them.”

In addition to such employer-sponsored tax shelters, taxpayers have until April 15 to set up or contribute to an Individual Retirement Account. Employees enrolled in a 401(k) plan are barred under both California and federal law from making tax-deductible contributions to an IRA. But those who can shelter their income in an IRA can increase their savings by making early contributions.

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Workers receiving distributions from pension funds and other retirement plans can keep such funds sheltered from taxes by putting them in an IRA within 60 days of receipt. Those who are retiring and need the money immediately may want to consult their tax adviser about the best way to receive the distribution.

Though it is generally known that the self-employed can set up a Keogh retirement plan, individuals such as consultants who have part-time self-employment income are also allowed to establish a Keogh, even if they are covered by their employer’s retirement plan or have an IRA. Maximum contributions to a Keogh depend on the type of plan selected--ordinarily about 20% of self-employment income, to a maximum of $30,000--and the Keogh plan must be established by Dec. 31.

December tax planning is perhaps most sobering for those who suffered at the hands of the stock market or the gaming tables.

There is not much in the way of tax relief for gamblers. Losses can be deducted only to the extent of winnings. If you lost $600 one week and won $700 the next, you pay taxes on the $100 net income. If you gamble once and lose $600, you simply suffer the loss: It’s not deductible.

The distinction between long-term and short-term tax treatment of stock sales has been eased, simplifying the rules for deducting stock losses. Generally, the maximum deduction on stock losses is $3,000. Any remaining loss can be carried forward.

Those lucky souls who face big capital gains from selling their home, business or other assets or securities can avoid a huge tax bite with a clever instrument called a charitable remainder trust. Ritchie of Peat Marwick gives the following example:

A couple is retiring and is considering selling for $1 million a home they purchased for $50,000. The couple doesn’t need the $1 million to live on, but they want to convert it to something liquid without the IRS taking a third in taxes. What to do? Ritchie advises that they put the $1 million in a charitable remainder trust set up by their lawyer or accountant. The trust invests the money at, say, 8% and pays them an $80,000 annual income until the couple dies. After that the remainder of the money goes to charity.


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