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by Harry Rabb, C.P.A.
Special to Tropical Breeze
When it comes to cutting your 2007 tax
bill, there's no time like the present. Here are some tax
strategies you may be able put into action now to help reduce your
2007 tax bill.
First, take retirement savings to the max.
One of the best ways to trim your tax bill is to make the maximum
allowable contribution to your retirement savings plan. For 2007,
employees may contribute up to $15,500 of their pre-tax salary to a
401(k) and the fund grows tax-deferred until withdrawn. Workers who
will be at least age 50 by the end of the year may contribute up to
an additional $5,000 per year. The Individual Retirement Account
(IRA) contribution limit for the 2007 tax year remains at its 2006
level of $4,000 ($5,000 for taxpayers who are age 50 or older).
Second, defer income. Income you don't
receive by December 31 isn't taxed until the following year. While
employees on salary don't have much of a choice regarding when
they get paid, taxpayers who are self-employed or do freelance or
consulting work have more flexibility. By delaying billing until
late December, you can postpone the receipt of income into next
year. Keep in mind that this strategy only makes sense if you think
you will be in the same or a lower tax bracket next year.
Third, pay some bills early. By prepaying
certain 2008 bills in 2007, you may be able to write off a
deduction earlier. For example, when you pay your January 2008
mortgage bill on or before December 31, you may deduct an extra
month of interest in 2007. If it's not included, remember to add
the extra month's interest amount to the amount reported by your
lender on your 1099 form. Paying your property taxes early is
another way to accelerate your federal deductions for 2007 if you
aren't subject to alternative minimum tax (a complicated subject
for another time).
Fourth, take a loss. If your portfolio
experienced significant capital gains in 2007, consider whether it
makes good financial sense to sell off some of the losers. You can
use the amount of your losses to offset capital gains. And if your
capital losses are larger than your capital gains, you can deduct
the capital loss against other income, such as your salary; up to a
limit of $3,000 in one year. Any additional losses can be carried
over into subsequent years, when they can be used to offset future
capital gains.
Fifth, go green. Consumers who purchase
and install specific improvements in their principal residence,
such as exterior windows and doors, insulation to walls, ceilings,
high efficiency water heaters, furnaces and boilers, and central
air conditioning units can receive a tax credit of up to $500. But
hurry -- energy-efficient tax credits apply to improvements made
between January 1, 2006 and December 31, 2007.
Sixth, be giving. Doing good for others
can do good to your tax bill. Donations made before the end of the
year are a great way to cut your 2007 tax bill. Keep in mind,
however, that effective for 2007, all money contributions,
regardless of the amount, require substantiation by a canceled
check or a receipt from a charity. Previously, receipts were
required only for contributions of $250 or more.
Donate appreciated property or stock
rather than cash and you may save even more by avoiding paying
capital gains taxes. Just be sure you understand the rules and give
yourself plenty of time because it could take several weeks to
transfer the stock or property.
Seventh, drain your flexible spending
account. Do you still have money left in your flexible spending
account? While the Internal Revenue Service (IRS) now allows
companies to give their employees a two-and-one-half month grace
period to spend money set aside in a flex spending account, not all
businesses have adopted this extension. If you have money left that
needs to be spent before December 31, don't wait until the last
minute.
With year-end tax planning approaching,
now is a great time to seek the help of a tax professional to
review your financials. He or she can advise you on how tax laws
impact your tax liability. The changes you make now can make the
difference in achieving a successful 2007 tax filing.
• • •
This information is provided as a public
service and should not be construed as individual accounting or tax
planning advice. For information on how these general principles
apply to your situation, please consult an accounting or tax
professional.
Harry Rabb is a C.P.A. and owner of
Accounting Services, Inc., 935 Main Street, Suite D-1, Safety
Harbor. Call 727-725-4121.
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