by Robert Flach

Created on: October 26, 2007

While the average taxpayer will avoid thinking about income taxes until the approach of the April 15th deadline forces him to do so, once the ball drops on One Times Square at midnight on December 31st and the New Year is rung in, there is very little that can be done to cut your tax bill.

However, during the last two months of the year you can do a great deal to reduce your tax liability.

Sit down with paper and pencil and list your anticipated income for 2007 and all your allowable deductions to date. What you want to do is, using your 2006 return as a guide, prepare a projected 2007 tax return. Once this is done you can decide what steps to take to make sure you pay the absolute least amount of federal, state and local income tax for 2007 and 2008. Tax information for 2007 and 2008 (i.e. standard deduction and personal exemption amounts, tax rates, etc.) is available on the WHAT'S NEW FOR 2007 and WHAT'S NEW FOR 2008 Pages at www.robertdflach.net.

Here are some basic year-end tax planning tips

* Traditional year-end planning calls for postponing the receipt of taxable income until 2008 and accelerating allowable deductions to be claimed in 2007, the idea is to reduce your 2007 taxable income to a minimum. This strategy will generally apply if you expect to be in the same tax bracket for both 2007 and 2008, or it you will be in a lower bracket in 2008.

If, however, you anticipate a substantial increase in taxable income in 2008, which will push you into a higher bracket, you should do the reverse and accelerate the receipt of taxable income to 2007 and postpone deductible expenses until 2008. Income received in 2007 will be taxed at a lower rate, and deductions claimed in 2008 will yield a greater tax savings.

Not sure what your 2008 income will be. Follow the rule of "when in doubt defer" - go the traditional route and postpone income and accelerate expenses.

* It does not pay to itemize unless the total of your allowable deductions exceeds the standard deduction that applies to your filing status, plus any additions for age or blindness. If you decide to accelerate allowable deductions to claim them in 2007, you can accelerate all you want, but it will be wasted unless your total "itemizable" deductions exceed your applicable standard deduction.

Let us assume you usually do not have enough deductions to itemize. However, after preparing your projected 2007 return you discover that, because of some special circumstance, you will be able to itemize this year. During

• 1
• 2
• 3
• 4
• Next Page >>