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The end of the year is fast approaching. However, there is still time to significantly alter your tax picture for 1998 and set a winning
strategy into motion for 1999. Because of the Taxpayer Relief Act of 1997 and the effective dates of the various pro visions, the acceleration
or deferral of income and expenses take on added importance. Some changes, such as the various federal and state capital gains tax rates and
the home sale exclusion, are based upon holding periods that must be met to achieve fa vorable tax treatment. Other changes, such as the new
child credit and the "Roth IRA's" are now available and their use may be restricted due to the phaseouts based upon adjusted gross income
levels. In the remaining weeks, it is important that you fami liarize yourself with some of the options that are available to shift income and
expenses into 1998 or 1999, depending upon how the 1997 tax act and the 1998 amendments affect you.
If you expect your 1998 taxable income to be MORE than 1999 (you expect a decrease in taxable income in 1999), you can do some of these
suggestions.
- Ask your boss to delay that handsome bonus until 1999 (unless that will be enough to make you jump to the next "bracket" in 1999).
- If you are self employed, delay your billings and the receipt of business income into 1999.
- If you itemize deductions on Schedule "A," you can
- Pay your January 1999 mortgage payment in 1998. Be sure your check arrives at the bank or other financial institution by December 31 to be
included in the annual Form 1098 (includes interest paid during 1998).
- If you have already paid medical and dental bills (including health insurance) sufficient to exceed 7.5% of Adjusted Gross Income, be sure to
pay all doctors, hospitals and that next monthly insurance payment in 1998.
- Make that charitable contribution before the end of the year. If you are short cash, use your bank credit card to make that contribution.
- Consider paying the remainder of the year's Real Estate tax bill by December 31.
- Make the January 15th state estimated tax payment in December.
If you expect your 1999 taxable income to be MORE than 1998 (you expect an increase in taxable income in 1999), you can do some of these
suggestions.
- Make sure your boss pays that handsome bonus in 1998 (unless that will be enough to make you jump to the next "bracket" in 1998).
- If you are self employed, send out your billings now and attempt to obtain the receipt of business income in 1998.
- If you itemize deductions on Schedule "A," you can
- If your December mortgage payment is due at the end of the month (and you won't get into trouble by delaying it), pay it just after December
31 to be included in the annual Form 1098 (includes interest paid during 1999).
- If your 1998 payments for medical and dental bills (including health insurance) are NOT sufficient to exceed 7.5% of Adjusted Gross Income, be
sure to pay all current doctors, hospitals and that next monthly insurance payment in 1999.
- Make that end-of-year charitable contribution after December 31.
- Make the January 15th state estimated tax payment in January.
For all others, you can think about this:
- If your financial planning shows it to be wise for you, convert your regular IRA accounts to Roth IRAs in 1998. Although this conversion
will create taxable income for you, you can delay reporting the income over four years (starting in 1998). This provision may be not only a tax
advantage, but also a subject for advanced financial planning. If you are not sure about it, consult with a professional.
- If you are thinking about going into a mutual fund or increasing your investment in a mutual fund during the month of December, please be
careful. December is the month when most mutual funds make their "capital gains" and other year-end distributions. The result is taxable
income to you while the price of the fund is adjusted to compensate for the distributions. Your net outlay is the tax on those distributions.
Call the mutual fund and find out when they will be issuing year-end distributions, and make your investment just after.
- Do you support your parents or a low-income person (under $2,700 of gross income)? Under the correct circumstances, that person may appear as
a dependent on your tax return giving you additional deductions. Medical expenses you paid for that dependent in 1998 should be deductible to
you on your Schedule A.
- Do you know where your capital gains will be for 1998? How about 1999? Should you shift something into either 1998 or 1999?
- What is the current status of your IRA? Are you over age 70½? Should you move your IRAs to a better investment or consolidate them to make it
easier to watch or invest?
- If you are self-employed (including that part-time business)? Have you established a Keogh or SIMPLE IRA before the December 31 deadline?
Take the time now to find out. It just might save you a lot of money when you file your income tax returns.
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