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There are still many ideas to
weigh as the end of another tax year fast approaches. You must look at
2004 and 2005 as you study your options. The goal is to cut the total tax
you pay over both years. Keep that in mind as you consider many of
the following ideas as you review your year-end situation.
· 50% business depreciation for business
assets placed in service before Dec. 31st.
· Businesses can write off as much as $102,000 of the
cost of business assets placed in service by Dec. 31st.
· Donating appreciated securities to charity is
very tax favored. Generally, the fair market value is deductible and you
avoid paying tax on the gain.
· Accelerate the payment of deductible expenses in
2004, e.g. real estate taxes, 4th quarter state/local estimated taxes,
mortgage interest, gifts to charities. However, you must consider
the effect of the Alternative Minimum Tax on such a plan.
· Take stock losses as an offset to capital
gains. The excess of such losses over gains can be used to offset
ordinary income, but only to a maximum of $3,000.
· Buying a new heavy SUV for business this year
can still create a tax advantage. If over 6,000 pounds, the 1st year
expensing is $25,000 (plus the regular depreciation allowed on the
balance).
· Gifting appreciated stock to your child age 14
or older. The child's gain on the sale of such stock will be taxed at a
5% rate as long as their taxable income does not exceed $29,050.
· Contribute to a state college savings plan.
· Gift up to $11,000 (or $22,000 if you make a
joint gift with your spouse) each year to your children free of gift tax.
This amount applies to each child. This standard gifting strategy will
assist in reducing your estate.
· Keogh plans and 401k's must be set up by Dec.
31st to obtain a 2004 contribution deduction. Regular and Roth IRA's must
be set up by April 15th; SEP-IRA's can be established by the due date of
your 2004 return, including extensions.
· Donate your car to charity by Dec 31st and
obtain a deduction for its fair market value. After January 1st, the deuction will be limited to the amount the charity
receives upon sale of the auto.
· Spend all money in your flexible spending
account, which allows for the payment of medical expenses using pre-tax
dollars. You either use it or lose it.
· Increase your tax withholding if you are facing
an underpayment penalty. To avoid such a penalty, you must prepay either
90% of your 2004 tax or 100% (110% for high income taxpayers) of your
2003 tax. Withheld taxes are treated as paid evenly throughout the year.
It is strongly recommended that
you have year-end tax projections prepared before finalizing any tax plan
so that you are aware of the effect of implementing such strategies.
Again, the key is to reduce your total combined tax for 2004 and 2005,
not just this year. Further, a determination of whether you are subject
to the Alternative Minimum Tax is required in order to implement a
comprehensive plan.
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