Last-Minute Tax Moves: A Primer
Taxpayers have until Dec. 31 (Friday) to make the following moves to potentially reduce their 1999 tax bill. But before making any major transaction, it’s a good idea to consult a professional tax preparer or tax manual such as “J.K. Lasser’s Your Income Tax 2000” ($14.95, IDG Books) for specific details.
* Securities sales: Friday is the last day to buy or sell stocks, bonds and mutual funds to lock in gains or losses for 1999 tax purposes. It doesn’t matter if the trade settles in the new year; the gain or loss is recognized in the year the transaction took place.
But remember: “Wash sale” rules prevent investors from claiming a loss for tax purposes if they sell an investment at a loss and then buy back the same or “substantially identical” security within 30 days.
* Gifts: Wealthier individuals who want to reduce the size of their taxable estates can give as much as $10,000 per recipient per year without triggering gift-tax reporting and taxing requirements. That limit is raised to $50,000 when contributions are made to college savings plans such as California’s ScholarShare; the gift is considered pro-rated over five years, so any other gifts to the same recipient before 2004 would require filing a gift-tax return.
* Charitable donations: For those who itemize their deductions, donations can be charged to credit cards as late as Dec. 31 and still count for 1999 tax purposes. The IRS considers checks sent to charities to be deductible in the year in which you mail them (meaning donations for 1999 should be mailed no later than Friday).
Keep a list and photograph of any noncash donations such as clothes and household goods, along with a receipt from the charity, in your tax records in case of audit.
* Miscellaneous deductions: Renewing job-related subscriptions, paying professional or union dues and paying employment-related tuition costs before year-end can reduce tax bills for those who itemize and whose miscellaneous deductions are greater than 2% of their adjusted gross income.
* Retirement plans: Keogh plans for the self-employed must be established by Friday, although contributions can be made as late as the tax return’s due date, including extensions. IRA contributions can also be made until the return is filed, although financial planners recommend making contributions as soon as possible in the year to take advantage of maximum tax deferral.
* Roth IRA conversions: Friday is the last day to undo a Roth IRA conversion that was made in error in 1998. Married couples who filed separately and singles or married people whose adjusted gross income exceeded $100,000 in 1998 were not eligible to convert their traditional individual retirement accounts to Roths and should reverse the transaction to avoid penalties.
* Business expenses: Buying equipment for businesses can reduce taxes; businesses and the self-employed can opt to deduct, rather than depreciate over time, up to $19,000 of business property purchased before year-end. The deduction is limited to the taxable income of the taxpayer’s business or businesses.
