Tax Planning Thoughts...

Many people start seriously thinking about tax season after the start of the New Year…which is actually a bit too late. Ideally, taxes should be planned two years at a time to save the most tax money. So before the year is over, it’s wise to look at the acceleration or postponement of deductions and income between years. For example, many taxpayers want to minimize the current year’s tax bill, so making sure your state income tax is paid in December rather than January can help. Additionally, you can pay Real Estate taxes and even January’s home loan payment in December to beef up your deductions. In fact, you are eligible to take the deduction if the checks are mailed in December…even if they are not cleared until January.
But watch out for AMT, Alternative Minimum Tax, which can erase your deductions. Testing to see if you fall into this trap may cause you to do the opposite – pushing some deductions off until next year, paying them in January rather than December. The same holds true for income. It is sometimes possible to accelerate or delay commissions, bonuses, billings, etc…and that can help you maximize tax savings.
You should always consult your tax pro on the strategy that is best for your own situation, but you can start by visiting www.irs.gov/newsroom. This link contains a list of the new inflation adjusted dollar amounts for many important tax figures for 2006. Comparing the allowable deductions for 2006 versus 2005 will help you choose in which year to take advantage of certain deductions. And remember, the time to consult with a CPA is now, not after the New Year begins…so if you need a referral for a qualified tax planner, please contact me.