No matter how much you earn
during the year, what really counts is what you get to keep (after-taxes). That
is why tax planning should be an all year-round effort. Effective
planning today may not only reduce your 2005 tax liability, it
can help you lessen the confusion at tax time next year.
In the remaining weeks, it is important that
you familiarize yourself with some of the options that are available
to shift income and expenses into 2005 or 2006, depending on
how the tax laws and amendments affect you.
If you expect your 2005 taxable income to be
GREATER than 2006, you may apply some of the following suggestions:
- Ask your boss to delay that handsome bonus
until 2006 (unless that will be enough to make you jump to
the next “bracket” in 2006).
- If you are self-employed, delay your billings
and the receipt of business income into 2006.
- If you itemize deductions on Schedule “A,” you
can pay your January 2006 mortgage payment in 2005. Be
sure your check arrives at the bank or mortgage company by
December 29 to be included in the annual Form 1098.
- 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 2005.
- Make your charitable contribution before
the end of the year. If you are short of 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. In Massachusetts
and some other states, the 2006 real estate tax bill, although
paid in quarterly or semi-annual payments during both 2005
and 2006, is really a liability as of July 1, 2005. If
you have already made two quarterly payments in 2005, consider
paying the other two quarters before December 31 2005, thereby
getting a larger tax deduction in 2005. This method is
not applicable if you are paying your real estate taxes through
an escrow payment made to your bank or mortgage company. Unless
you believe you will be subject to the Alternative Minimum
Tax (AMT), if you think you will owe income taxes to the state,
consider making an estimated tax payment by December 31, 2005
instead of the next installment due date of January 15 or by
April 15.
If you expect your 2006 taxable income to be
MORE than 2005 AND you expect to be in a higher tax bracket in
2006, you may apply some of the following suggestions.
- Ask your boss to pay that handsome bonus
in 2005 (unless that will be enough to make you jump to the
next “bracket” in 2005).
- If you are self-employed, send out your
billings now and attempt to obtain the receipt of business
income in 2005.
- If you itemize deductions on Schedule “A,” you
can:
- Delay your December mortgage payment (if
you won’t get into trouble by delaying it), until just
after December 31 to be included in the next annual Form
1098.
- If your 2005 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 medical
insurance premium in 2006.
- Make that end-of-year charitable contribution
after December 31.
- Make the January 15th state estimated tax
payment in January.
Other issues to consider:
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 that date.
Do you know where your capital gains will be
for 2005? How about 2006? Should you shift something
into either 2005 or 2006?
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? Consolidation of IRAs may save annual fees that
most funds charge.
If you are self-employed (including that part-time
business), have you established a qualified retirement plan before
the December 31 deadline?
Pushing deductions into 2006 may not always
be worthwhile. If you will not be able to itemize deductions
on Schedule A in 2005, these "extra" amounts will be
wasted. It might be better to hold them off until 2006
when you may have enough deductions to allow you to itemize as
opposed to using the standard deduction. Take the time
now to find out. It just might save you a lot of money
when you file your income tax returns.
Many accountants view their goal as minimizing
their clients' taxes. NOT ME! I like to see my clients
pay more taxes – because this means their earnings and
profits may be increasing dramatically. I can help you
with strategies designed to achieve those earnings and profits. Talk
to me and find out more.
I am now scheduling tax-planning conferences
for individuals and businesses to help determine where you might
be "tax-wise" on the day of reckoning. If you
wish to have a year-end tax review, please call to arrange an
appointment. Please note, because of the anticipated workload
this year tax-planning conferences will not be scheduled after
December 23rd. Ruti, my assistant, or I would be happy
to arrange your appointment.
As we have discovered in many previous cases or you may have
noticed in a prior year planning session, effective tax planning
generally saves you more than our fee.
The greatest compliment our clients can
give is a referral to a friend or family member. If
you know of someone that may want take advantage of our professional
services, please call us and provide that person’s name
and telephone number. Also let us know if we can use
your name during the introductory call. We do pay a “referral” fee
of $25 or credit your tax account for each new client utilizing
and paying for our tax services.
A friendly "Thank you!" for your
patronage during the past year and for the confidence you have
placed in us. We will always do everything we can to assure
complete satisfaction. We are looking forward to many more
opportunities of serving you in the future.
In the meantime, if you have any questions
about a tax, business, financial or portfolio activity, please
do not hesitate to call me.
Sincerely,
Roger A. Kahan, CPA
Securities offered through LINSCO/PRIVATE
LEDGER, Member NASD, SIPC |
