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