Leap Into Tax Planning

Leap Into Tax Planning

2008 year is a leap year, which also makes it a presidential election year. Beware of election years!

Presidential elections often initiate tax changes. This year’s election could impact the lower tax rates on dividends and capital gains. Although they are scheduled to run through 2008, Senator Kerry has stated that he will terminate them as of January 1, 2005. Take inventory of your stock holdings and consider tax-reducing maneuvers without letting tax considerations dominate your investment strategies. Bill Gates decided not to chance it and will personally pay tax on $3.5 billion of dividends received from Microsoft this year.

It is also October…that time of year again! Review your records to determine your projected income for 2004. Implementing proven tax-planning fundamentals can provide significant income tax relief. Best of all, you can accomplish savings without increasing your exposure to risk.

A fundamental way to save is to shift income to lower tax rates and shift deductions to higher tax rates. This shifting can be accomplished between related parties or simply consecutive years. The objective is to lower total income tax of a selected group of taxpayers over a chosen period of time. Listed below are some examples:

If you anticipate being in a higher tax bracket this year, shift income into next year or deductions into this year by:

·Deferring a bonus until January

·Delaying an IRA withdrawal

·Investing money market funds into Certificate of Deposits (CDs) that don’t mature until after January 1

·Paying January’s mortgage payment in December

·Paying 2005’s Real Estate taxes (as long as they are not currently escrowed with your mortgage payment) in December

·Paying 4th quarter state income tax estimate in December

·Contributing the maximum to your retirement plan

·Making donations to your favorite charities

-Cash

-Appreciated stock

-Personal property

If you are not passionate about a charity now or would like to accumulate funds on a tax-deductible basis in order to make a significant donation in the future, consider contributing to a Donor Advisory Gift Fund.

·If your itemized deductions approximate the Standard Deduction, consider “bunching” your itemized deductions. Bunching is paying the majority of your deductions for a two-year period in one year and then taking the standard deduction the other year. This can generate considerable tax savings without incurring any additional commitments.

Married filing Jointly: $9,700

If both spouses 65 or older: $11,600

Head of Household: $7,150

If 65 or older: $8,350

Single: $4,850

If 65 or older: $6,050

The tax benefit of paying state and local income taxes and miscellaneous expenses, such as unreimbursed employee business expenses and investment expenses, can be negated by the Alternative Minimum Tax. We will be happy to review your potential exposure with you and discuss tactics to minimize, if not eliminate, its impact.

If you own or operate a business, consider:

·Acquiring and placing into service before year-end qualified tangible depreciable property. Under Code Section 179, you can expense up to $102,000. Sport utility vehicles weighing over 6,000 pounds are currently entitled to be expensed. Pending legislation will lower the amount to $25,000 prospectively.

·Utilizing the bonus depreciation permitted by the Jobs and Growth Tax Relief Reconciliation Act of 2003 may provide an additional 50 percent of the cost of new qualifying property. The Bonus Depreciation is scheduled to expire on December 31, 2004.

·Implementing a qualified retirement plan prior to December 31, 2004.

Most importantly, don’t overlook the benefits of managing your Adjusted Gross Income (AGI). Your AGI impacts the amount of:

·Personal exemptions

·Itemized deductions

·Child credits

·Education-related credits

·Financial aid for college

·Rental losses

·Taxability of your social security benefits

·State income tax (in Ohio)

Your tax-planning strategies should align with your personal financial goals and objectives. It may be helpful to view tax savings as pre-approved discounts or subsidies from Uncle Sam. If you are in a 25 percent marginal tax bracket, you will receive a $250 discount on a $1,000 tax-deductible expenditure. Make sure that expenditure is worth $750 to you.

Tax planning should be an enjoyable and financially rewarding endeavor. Give us a call and we’ll help you get started.