Seven Year-End Tax Planning Ideas

There’s still time to do something about decreasing this year’s tax bill. Consider these tax-saving ideas before 2007 comes to a close:

1. Maximize your deductions. If you were able to itemize deductions for 2006, review last year’s Schedule A with an eye to maximizing those deductions before the end of 2007. Seek out new deductions, if possible. Look into prepaying some deductible expenses for 2008 in late 2007. You might want to make both your 2007 and 2008 charitable contributions before the end of the year. You also may be able to prepay 2008 real estate or state income taxes in 2007.

2. Postpone some income. If you plan to sell property before year’s end, ask your advisers about using an installment sale that defers some taxable income into the future. The capital gains tax rate is scheduled to drop to zero percent in 2008, 2009 and 2010 for taxpayers in the 15% and 10% tax brackets, which could make it more appealing to sell appreciated securities after 2007. Married couples filing jointly will be in the 15% bracket for 2008 until taxable income reaches $65,100; for singles the 15% bracket will end at $32,550.

3. Give stock to kids in college. If you give highly appreciated stock to a child or grandchild in college, the child can sell the stock before the end of 2007 and generally owe capital gains tax at only a 5% rate (vs. 15% for a parent). Starting in 2008, however, the “kiddie” tax will apply to most full-time college students under age 24 and all children under age 19 – causing investment income over $1,800 to be taxed at the parents’ tax rates.

4. Review your portfolio. Consider selling securities that have gone down in value and use your capital losses to offset any capital gains from the sale of profitable investments. Excess losses can be deducted against ordinary income (up to $3,000), and deducted in future years. Wait at least 30 days before buying back loss stock or your deduction will be postponed.

5. Fully fund your retirement plan. Contribute the maximum that’s deductible – certainly any amount that is matched by your employer. The 2007 limit on 401(k) plans is $15,500 plus another $5,000 for employees over age 50. The IRA maximum is $4,000 and workers age 50 and above may make additional “catch-up” contributions of $1,000.

6. Watch AMT. If it appears you will be subject to alternative minimum tax you may want to defer some deductible expenses until next year and accelerate income into 2007, when it will be taxed at rates of 26% or 28%. Consult with your advisers.

7. Maximize deductions for charitable gifts. See the following article, and remember that gifts can also be planned that provide lifetime income, to you or others, that may be higher than what you are currently receiving from investments or savings. What’s more, you will be entitled to a significant charitable deduction – and the satisfaction of providing for future generations.

<Back

Copyright © 2007 by R&R Newkirk. All rights reserved.