| While the average taxpayer will avoid thinking | | | | any more medical bills until 2006. The same |
| about income taxes until the approach of the April | | | | concept applies for miscellaneous deductions.If you |
| deadline forces him to do so, once the ball drops | | | | expect to be able to itemize, and you are making |
| on One Times Square at midnight on December | | | | quarterly state estimated tax payments, make |
| 31st and the New Year is rung in there is very | | | | the 4th quarter payment in December, instead of |
| little that can be done to cut your tax | | | | waiting until the January 16, 2006 due date, so |
| bill.However, during the last two months of the | | | | you will be able to deduct the payment on your |
| year you can do a great deal to reduce your tax | | | | 2005 Schedule A.4) If you do not have the cash |
| liability.Sit down with paper and pencil and list your | | | | available to pay for the deductible items you have |
| anticipated income for 2005 and all your allowable | | | | scheduled as part of your year-end plan, you can |
| deductions to date. What you want to do is, using | | | | use a credit card to pay for the item and still get |
| your 2004 return as a guide, prepare a projected | | | | a 2005 deduction. Allowable expenses charged to |
| 2005 return. Once this is done you can decide | | | | a credit card (VISA, Master Card, American |
| what steps to take to make sure you pay the | | | | Express, Discover) are deductible in the year |
| absolute least amount of federal and state income | | | | charged, and not in the year that you actually pay |
| tax possible for 2005 and 2006. Tax information | | | | for the charge.5) The option to deduct state and |
| for 2005 (i.e. standard deduction and personal | | | | local sales tax paid instead of state and local |
| exemption amounts, tax rates, etc.) is available on | | | | income tax paid will expire on December 31, 2005. |
| the WHAT'S NEW FOR 2005 Page at are some | | | | This option will not be available for 2006. If you |
| year-end tips:1) Traditional year-end planning calls | | | | are planning to buy a new car (other than a |
| for postponing the receipt of taxable income until | | | | qualifying energy-saving hybrid - see tip #6), SUV, |
| 2006 and accelerating allowable deductions to be | | | | motorcycle, or other "big ticket" item in the near |
| claimed in 2005, the idea being to reduce your | | | | future you may want to do so before the end of |
| 2005 taxable income to a minimum. This strategy | | | | the year to be able to deduct the sales tax.6) |
| will generally apply if you expect to be in the | | | | The Energy Tax Incentives Act of 2005 creates |
| same tax bracket for both 2005 and 2006, or if | | | | new tax credits for certain energy-saving autos, |
| you will be in a lower bracket in 2006.If, however, | | | | consumer products and home improvements |
| you anticipate a substantial increase in taxable | | | | beginning in 2006. You may want to postpone any |
| income in 2006, which will push you into a higher | | | | purchase of qualifying energy-saving items until |
| bracket, you should do the reverse and | | | | next year to be able to claim the credit.7) While |
| accelerate the receipt of taxable income to 2005 | | | | postponing income and accelerating deductions |
| and postpone deductible expenses until 2006. | | | | may reduce your "regular" income tax for 2005, |
| Income received in 2005 will be taxed at a lower | | | | these actions may backfire and end up costing |
| rate, and deductions claimed in 2006 will yield a | | | | you if you fall victim to the dreaded Alternative |
| greater tax savings.Not sure what your 2006 | | | | Minimum Tax (AMT). Why? Because taxes and |
| income will be. Follow the rule of "when in doubt - | | | | miscellaneous expenses are not deductible in |
| defer" - go the traditional route and postpone | | | | calculating AMT, and medical expenses are only |
| income and accelerate expenses.2) It does not | | | | deductible to the extent they exceed 10% of |
| pay to itemize unless the total of your allowable | | | | AGI. When preparing your projected 2005 return |
| deductions exceeds the standard deduction that | | | | be sure to determine if you will be subject to |
| applies to your filing status, plus any additions for | | | | AMT and plan your strategies accordingly.8) When |
| age or blindness. If you decide to accelerate | | | | preparing your projected return you should |
| allowable deductions to claim them in 2005, you | | | | review the performance of your investment |
| can accelerate all you want, but it will be wasted | | | | portfolio for the year. Add up all your realized |
| unless your total "itemizable" deductions exceed | | | | gains and losses from actual sales of stock, bonds |
| your applicable standard deduction.Let us say you | | | | and mutual fund shares for the first 10 months of |
| usually do not have enough deductions to itemize. | | | | the year, with separate net totals for short-term |
| However, after preparing your projected 2005 | | | | (held one year of less) and long-term (held more |
| return you discover that, because of some special | | | | than one year) activity. Gains and losses from |
| circumstance, you will be able to itemize this year. | | | | inherited property are always considered |
| During the last two months of the year you | | | | long-term. Include in the long-term calculation any |
| should incur, and pay for, as many deductible | | | | "capital gain distributions" from mutual funds.Now |
| expenses as possible.If, on the other hand, your | | | | do a similar calculation for unrealized "paper" gains |
| projected return indicates that you do not have | | | | and losses on the investments you still hold. You |
| anywhere near enough deductions to be able to | | | | may want to sell some of your investments |
| itemize, postpone making any deductible | | | | before the end of the year at a loss to wipe out |
| payments until 2006. Making these payments in | | | | year-to-date gains, or at a profit to take |
| 2005 would not produce any tax savings, while it | | | | advantage of year-to-date losses in excess of |
| is possible that by deferring them until next year | | | | $3,000.00.There are no written in stone year-end |
| you may be able to itemize in 2006.3) The timing | | | | tax planning rules that apply to all taxpayers in all |
| of deductions is especially important when it | | | | cases. As with any other transaction, year-end |
| comes to medical expenses and miscellaneous | | | | strategies must be evaluated in the context of |
| job-related and investment expenses. You are | | | | the special facts and circumstances of your |
| allowed to deduct medical expenses only to the | | | | individual situation. You may want to review your |
| extent that they exceed 7 1/2% of your | | | | year-end situation with your tax professional.And |
| Adjusted Gross Income (AGI), and most | | | | remember - your first criteria for evaluating any |
| miscellaneous deductions are only deductible to | | | | financial transaction you are considering should |
| the extent that the total exceeds 2% of AGI.If | | | | always be economic. Taxes are second.Robert D |
| you anticipate a 2005 AGI of $70,000.00 you | | | | Flach is a tax professional with 34 tax seasons of |
| must exclude the first $5,250.00 of medical | | | | experience preparing 1040s for individuals in all |
| expenses - the first $5,250.00 is not deductible. If | | | | walks of life. He writes THE WANDERING TAX |
| your medical expenses to date are close to or | | | | PRO weblog ( the NJ TAX PRACTICE BLOG ( |
| more than %5,250.00, and you will be able to | | | | and the website which has a wealth of tax |
| itemize, pay any outstanding medical bills and | | | | planning and preparation advice and information. |
| schedule, and pay for, check-ups, doctor visits | | | | He also writes and publishes THE FLACH REPORT, |
| and needed dental work in November and | | | | a quarterly tax newsletter. For more info on THE |
| December. If medical payments to date are | | | | FLACH REPORT go to The above article is taken |
| substantially less than $5,250.00, put off paying | | | | from postings to THE WANDERING TAX PRO. |