Now is
best time to start thinking about your year end tax planning. These tax strategies can be put into effect by end of year and some as late as when tax return is due. Planning now will save you money and reduce your tax liability not only with your IRS taxes but also with your state taxes. Here are tax tips that will help you accomplish your goal. MINIMIZE YOUR CAPITAL GAINS
Review your capital gains and losses for year including taxable investment accounts and taxable real estate sales. If you have net capital gains, you may want to sell some of your investments that have a loss to offset gain. You should also check your 2003 tax return for any loss carry forwards to 2004.
NEW SALES TAX DEDUCTION
New in 2004 taxpayers who itemize deductions can now choose between claiming state income tax or sales tax as a deduction. The IRS will provide optional tables for use in determining this sales tax deduction if tax payers don’t keep their receipts throughout year. Sales tax paid on motor vehicles and boats may be added to table amount up to general sales tax rate.
EDUCATOR’S DEDUCTION
Renewed for 2004 and 2005, eligible educators are permitted an “above-the-line” deduction up to $250 per year for non-reimbursed expenses incurred in connection with books, supplies, computer equipment and supplementary materials used in classroom.
COMBAT PAY
Due to Working Families Tax Relief Act of 2004 military personnel receiving combat pay can get larger tax credits in 2004. The new law counts excludable combat pay as income when figuring Child Tax Credit. The taxpayer also has option of including or excluding combat pay when figuring Earned Income Tax Credit. As always, combat pay is excluded from taxable income.
OPEN AN INDIVIDUAL RETIREMENT PLAN ACCOUNT (IRA)
See http://www.dgoodmancpa.com/smallbusinessretirementplan.htm#INDPLAN for an example of what you can do to defer income until retirement. You can open your 2004 IRA as late as April 15th of 2005. You may want to consider a Roth IRA. They are not tax deductible but also are not taxable when withdrawn at retirement.
GET ORGANIZED
Clients always ask me what I need in order to do their taxes. For 90% of population, with a little organization, your tax preparation doesn’t have to be overwhelming. First, when you get those tax documents in mail, have a folder ready to just drop it in there and forget about it until tax time. Most tax documents are required to be mailed by January 31st so you should have almost everything by first week of February. If not, call to have them send a duplicate. Next, go through your check book, credit card statements and cash payouts for basic deductible items. This would include your medical expenses including eye glasses, taxes paid including vehicle registrations, donations and any employer expenses that were not reimbursed. Don’t forget day care expenses, student loan interest and tuition if any of those apply to you.
