10 WAYS TO SAVE TAXES BEFORE YEAR-END
The year is almost over, but if you act fast, you can still save a few dollars on your 1993 tax bill with a few sage moves. Notably, despite the new tax law, most last-minute tax tips are familiar: saving for retirement, giving money to charity.
What can you do? Here are 10 ideas.
Save for old age
Most taxpayers can deduct contributions to retirement plans from their annual income, which translates to a $310 tax savings on a $1,000 contribution for somebody in the 31% tax bracket. There are three main types of plans, 401(k)s offered by employers; Keogh plans for self-employed individuals, and individual retirement accounts for those who aren’t covered by company pensions.
How much--and when--you need to contribute depends on which type of retirement plan is available to you. If you’re not sure, call the Internal Revenue Service at (800) TAX-1040 or consult your tax adviser.
Make January’s mortgage payment now
If you send your January mortgage payment before Dec. 31, you can take the interest deduction on your 1993 return. Of course, that means you’ll lose that deduction in 1994. But, hopefully, next year you’ll do your tax planning earlier and have more options.
Bundle itemized deductions
Deductions for medical expenses, miscellaneous business expenses and casualty losses can only be used if they exceed a set portion of your income. Consequently, if you had big medical expenses in 1993, get your annual check-up done this month rather than in January to increase your chances of deducting it. But, if you anticipate bigger bills next year, wait.
Give to charity
Forget Spring cleaning. The time to haul usable items out of your closets, attic and garage is now, when you can give them to worthy charities and get a 1993 tax deduction to boot. Also, if you send a check by Dec. 31, it’s deductible on this year’s taxes even if it’s not cashed until later.
Pay taxes early
Property and state taxes that aren’t due until March or April can be paid in December and deducted in 1993. But if you’ve got a high income and huge deductions, be aware that these payments could trigger the onerous alternative minimum tax.
Spend reserves in dependent and health care accounts
You forfeit unspent money in employer-sponsored health care and dependent care accounts at year-end. If you’ve got reserves, use them quick. You may be able to pay January’s child care bill today, for instance. Or, again, move forward a medical appointment.
Wine and dine your clients now
The 1993 tax act pared deductions for entertaining your clients. If you entertain a client before January you can deduct 80% of the cost. If you wait, your deduction is limited to 50%.
Match capital gains and capital losses
If you’ve got significant investment losses, consider selling securities you hold at a gain. (You can only deduct $3,000 of investment losses against ordinary income each year.) The opposite also holds true. If you have significant gains, consider recognizing losses.
Delay mutual fund investments
If your Christmas gift--or New Year’s resolution--is to put some money in a mutual fund, wait until year-end. That’s because most mutual fund companies distribute income to shareholders in late December. These distributions are considered taxable income. But for someone who just invested, it’s purely a return of principal. If, on the other hand, you wait a few days, you’ll delay receipt of the income for another year. And, of course, that’s the bottom line with most tax planning strategies--defer income, accelerate deductions.
Give to your kids
It won’t save on income taxes, but wealthy taxpayers should consider making annual cash gifts to their children as a way of saving estate taxes. You can give up to $10,000 per recipient each year without triggering gift or estate tax problems.
